bionic mosquito

More Money Myth Peddlers

2012-01-30T12:56:00.000-08:00

http://thedailybell.com/3557/A-Gold-Standard-Is-Good

Mr. Migchels is a laughable fellow. He seems to have found a niche of getting noticed by including the words “Ron Paul” in his posts, the way many MSM bloggers have done.

But I digress….

DB has pointed out quite well that the solution – the ONLY solution to free man from the money power Mr. Migchels claims to fear – is to allow the market to decide what the participants intend to use for money, currency, banking, and credit (hereinafter “money” for short).

Instead, please note the cognitive dissonance – even in this one article by Mr. Migchels (I have taken quotes from the original article):

http://www.henrymakow.com/return_of_the_gold_standard_im.html

“It [a gold standard] is a wealth transfer to those holding Gold, which is not the 99%...”

“The 99% having no Gold will as usually be holding the bag.”

“Our answer must be to have the Government reclaim the monopoly it has surrendered to a private Central Banking Cartel…Government must print debt free money, preferably Social Credit.”

The 99% don’t control 99% of ANYTHING – and least of all the government (in which Mr. Migchels rests his hope) This is lame-brain nonsense at its best. To believe that the government can be controlled by the people when it comes to the issue of money cannot be a more laughable belief.

Recall October of 2008, with calls to Congress 99 to 1 AGAINST TARP, and Congress passed it anyway. Oh by the way, less than one month later, most of the politicians that ignored the people were re-elected.

“…the volume [of gold] can be manipulated, because most of it is in the hand of the Money Power, who can inflate and deflate at will.”

No better to give Congress the power to inflate and deflate at will. Yes, there is a disciplined bunch for you. Good idea, Mr. Migchels.

In any case, if I am free to use any form of money I like, let the Money Power (or Congress) manipulate away, I will use sea shells.

“It will lead to an excruciating deflation.”

It depends on the price that currency can be converted back to gold.

“Deflation destroys the economy, because people have an incentive to hoard cash, instead of using it for production and consumption.”

This is nonsense. From 1787 until 1913, the United States experienced a general, mild deflation. And it experienced a growth rate previously unknown to most of the world.

To quote Churchill shows Mr. Migchels economic ignorance, as it was Churchill who – for pride – reinstated England’s gold standard at the pre-war rate, after significant inflation in the money supply.

“Since this [government created debt-free money] is not going to happen any time soon, we should build free market currencies, which can actively compete with national currencies.”

Would Mr. Migchels object if a large portion of the “free-market” happened to desire the use of gold (and silver) to back the currency?

As this would be the likely outcome….

Good For You, Tim Thomas

2012-01-26T10:51:00.000-08:00

"I believe the Federal government has grown out of control, threatening the Rights, Liberties, and Property of the People.

"This is being done at the Executive, Legislative, and Judicial level. This is in direct opposition to the Constitution and the Founding Fathers vision for the Federal government.

"Because I believe this, today I exercised my right as a Free Citizen, and did not visit the White House. This was not about politics or party, as in my opinion both parties are responsible for the situation we are in as a country. This was about a choice I had to make as an INDIVIDUAL.

"This is the only public statement I will be making on this topic. TT"

With these words, Tim Thomas displayed both tremendous insight and tremendous courage.

And with these words, it seems much of the mainstream discussion has been to demonize him.

He is disrespectful to the President. He is disrespectful to the office. He shouldn’t introduce politics into this celebration. He is an ugly American.

On the radio, on TV, on the internet, in the press. For the most part, this is the dialogue.

Tim Thomas had to know this would come, yet he stood on his head (for you hockey fans, you know what I mean).

I applaud Tim Thomas. His words are true and an accurate statement on the condition of the United States.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed….”

There is little from Thomas Jefferson’s word that has survived these two-hundred plus years. Mr. Thomas has captured this quite well in his opening sentence:

"I believe the Federal government has grown out of control, threatening the Rights, Liberties, and Property of the People.”

Can this be denied? Is it even up for debate? Especially since September 11, one action of government after another has been an ever increasing usurpation of the rights, liberties, and property of the people.

Of course people deny it. This denial can be measured by the numbers who vote for anyone other than Ron Paul in this current election. They cannot (or will not) see the destruction of life and liberty as it is occurring right in front of their noses.

I applaud Tim Thomas. He was afforded a platform to make a statement, and he made it.

He is correct.

The Countless Fallacies of Ingo

2012-01-12T20:59:00.000-08:00

http://thedailybell.com/3480/Adrian-Krieg-Emerging-Totalitarianism

To follow along:

Standard Font = My points regarding views of Ingo
Italics = Ingo's reply to these
Bold = my comments in reply

Well, what do you know? Something concrete... . Congratulations !!!

Something concrete???? Ingo, you and I have exchanged countless thousands of words on many of these subjects. Is this only now dawning on you?

1) No private property in land; all land is state / government owned.

CORRECT: there is NO private property in Land. It does not exist. (Read John Locke for the argument) People have exclusive use of Land in perpetuity through "fee simple" titles issued by Country Registrars.

I don’t need to read John Locke to understand this kind of thinking offers the road to slavery.

WRONG: No state, no government owns Land. Land cannot be owned, it can only be used. States have allodial title over land, which simply gives them juridiction over landed areas where no other sovereign can impose any kind of tax. Allodial title also obligates the State to administer equal access to Land for residents in their jurisdictions. They use the counties as their subdivisions to meet the obligation.

Control, use disposition. Do you have a different definition of “ownership”? Inherently SOMEONE gets to decide these things. Either I control, use, and can dispose of the land under my home, or someone else can. There is no third choice.

2) Lincoln's vision of keeping the union together under all circumstances must be maintained, ignoring the cost this exacted the first time.

CORRECT: Lincoln's decision to fight the Civil War amounted to instituting the concept of the "Insolubility of the United States". In other words, once a state joins the Union, it is stuck. Lincoln changed "These United States" to "The United States".

Yes, and this was the end of any idea that the states were to be a check and balance against federal over-reach. No 17^th amendment needed.

WRONG: I think the cost in lives the Civil War extracted was severe. The question is whether this great sacrifice in lives to fight the Civil War did not actually prevent a much greater loss of lives down the road. I will argue that it did.

The same (false) logic is used to defend the bombing of Hiroshima and Nagasaki. However, more important is this: a group of people decided that they no longer desired to be under a certain government, and instead chose to form a new one. The jilted government didn’t like this and decided to kill those who wanted to leave. How is this defensible?

3) The state is necessary for markets to function.

WRONG: There are only two "wealth distribution systems". One is the "free market" which distributes wealth by totally voluntary, uncoerced, private agreements. The other is "Socialism" which distributes wealth to one degree or another by government edict. I am against "Socialism", and I am full square for the "Free Market". The State is not necessary for markets to function.

Ingo, countless times you have stated you believe in the free market, followed by a list of state intrusions longer than my sleeve as “necessities” for the market to function properly.

4) Banking cannot properly function without state charter.

Wrong: Banks can function without state charter. However, States have an obligation to adhere to the U.S. Constitution. To validate a paper currency to be used as "legal tender" under the U.S. Constitution, the State issues bank charters requiring full redemption at any time of the paper currency issued by a chartered bank.

The State charter sets forth the bank's obligation in creating redeemable paper currency and the State's authority to check that the bank meets the obligation. Through State bank charters, the States insure adherence to Section 10, Article I of the Constitution.

Just because it is in (your interpretation of) the Constitution does not make it economically necessary. Contracts between individuals will suffice.

5) The original Federal Reserve Act of 1913 was a good and necessary act, done openly and with good intent.

CORRECT: While the big NY banks and their ally, Majority Leader Alrich (R) in the U.S. Senate did everything to award the contemplated franchise of a national currency to the NY banks, the majority of the U.S. Senators insisted on a franchise issued to each of twelve independent, regional reserve banks to create redeemable currency under the "Real Bills Doctrine". (See FRA of 1913, paragraph (a) and (c), Section 14.) Only after Senator Aldrich saw that he would be unable to pass the FRA in favor of the NY banks did he start to support the ratification of the 16th Amendment. It was the Income Tax which allowed the NY FRB to violate the 1913 FRA starting in the 1920s and eventually destroy the original FED system. The FRA of 1913 sought to effect control over the use of "idle currency" for speculative purposes.

There is nothing ggood that can come from legislation that establishes such a concentrated money power. Whatever the original intent, there is no doubt what this creature would become, and many people understood this even in 1913.

6) Legal form triumphs economic reality; for example, credit (real bills) is not credit if the legislature says it isn't.

WRONG: Real Bills have nothing to do with legislation. Real Bills evolved over hundred of years and are governed by a separate section of Common Law known as the Law of Bills and Notes. Real Bills are not credit. Real Bills are an asset which are immediately negotiable and can be discounted. The deciding party in a Real Bill is the signer, not the drawer. Credit instruments, or loans are not discounted. These instruments earn interest. Lenders want interest, not discounts. Real Bills are discounted, loans are not.

You misinterpret the point entirely. Whether based on legislation or common law, neither changes the underlying economics – payment later for goods delivered today. This is credit. On this point, we have exchanged too many words.

7) Repeal of the 17th amendment is a key to restoring the republic to the original intent of the founders', ignoring the events of 1861 - 1865

CORRECT: The events (Civil War) of 1861 - 1865 have absolutely nothing to do with the 17th Amendment. The 17th Amendment changed the selection of U.S. Senators by state legislators to a popular election by state voters. This was something which the founders were utterly opposed to judging from their four week long debate of the very subject during the Constitutional Convention in 1787.

Again, you misinterpret. I know Lincoln’s war had nothing to do with the 17^th amendment. The point is the states lost their voice in 1865. The deaths of 700,000 carried a far stronger message to the states to toe the line than did a few words on paper passed 50 years later.

By ratifying the 17th Amendment, the states surrendered their power in the U.S. Congress. The present concentration of power in the federal government is the direct result of the ratification of the 17th Amendment.

No, the concentration of power in the federal government can be much more logically traced to Lincoln winning the war.

8) The states lost their voice with the passage of the 17th amendment, again ignoring that the voice was lost in 1865.

CORRECT: The states resigned their voice in the U.S. Congress with the ratification of the 17th Amendment in 1913. The states did not lose their voice in the U.S. Congress in 1865. However, they did lose the freedom to seceed from the Union.

Without the ability to secede, the states lost their voice.

9) Capping property taxes in California through Proposition 13 was a bad idea

CORRECT: If land parcels are taxed on their actual value (Land value are County Assessor records) the use of those parcel must be put to their best and proper use. Capping this tax, or collecting a tax below value allows parcels to be used for speculative purposes. California is the only state which passed Proposition 13. It is the State which is in the greatest financial problems today. It is not widely reported, but California's real estate boom and bust has put the State into insolvency which is only staved off through federal funds, meaning the 49 other states pay for the survival of California.

Anything that limits the states ability to tax is a good thing. For one time, the citizens of a jurisdiction effectively set a limit, and this limit has stuck for over thirty years. That such successes could be achieved everywhere and for all forms of taxes.

10) Free markets = government legislation, government regulation, government charter, government audit, and government enforcement.

NONSENSE: See Item 3)

NONSENSE: See my response to item 3)

11) 'REAL BILLS ARE NOT BACKED BY GOLD. REAL BILLS ARE GOLD, almost.'

CORRECT: Real Bills are backed by the reputation of the signer and the ready demand for his goods by his customers. Banks create redeemable paper currency against Real Bills which they acquire by discounting them to the producer/seller. The State bank charters require that paper currency be readily redeemable into gold. Banks are required to hold certain amounts of gold as capital. If redemption requirements exceed gold on hand, a bank can always rediscount Real Bills for gold.

Mans’ dream, to create gold from nothing. It is called inflation.

12) If the courts decide something is Constitutional, it is Constitutional.

WRONG: Courts, including the Supreme Court, set precedence with their decisions. None of the court decisions have the power of a constitutional amendment. As a matter of fact, I propose a constitutional amendment to vacate all Supreme Court decision since 1937.

Fair enough. Now how about an amendment to destroy the idea of precedent.

13) 'The "State" came into existence to preserve the family.'

The "State" is a natural phenomenon which emerges form a group of people congregated in a certain area. "Government" is the legal body which enforces rules established by the group of people in a certain area to allow them to survive and to propagate. An "Administration" are the people who operate the government.

You do not address the statement, which is a direct quote of yours. However, there is certainly nothing natural about the “state.”

14) 'Would humans and families go extinct without the "State"? Yes, it is very likely that they would.'

CORRECT: It is better to say "Government", then to use the term "State". Without "Government" individual rights would be difficult to protect and the ability to secure families and other groups in their economic behavior would be threatened. There cannot be liberty without government, but government is also the greatest threat to liberty. The balance is found in a Republic under the Rule of Law.

I can live with the idea of government, as long as the association is voluntary and one is free to leave or secede. As you support Lincoln’s war, we obviously have different views on what constitutes a just government.

15) Congress established Social Security out of benevolence, in order to make up for the inability to save for retirement due to gold confiscation.

WRONG: Congress was "forced" to pass Social Security Legislation, because the nationalization of gold confiscated gold holdings from American savers in 1933. Without Gold, an individual cannot "save" to sustain himself in old age.

Who “forced” Congress to pass Social Security? Why did they feel “forced”? You believe it is because Congress felt somehow obliged because people could no longer save for retirement – you say it again here. Hence the term benevolence.

However it was passed as one more tool to gain constituency.

16) In 2012 Republican election, believes Newt Gingrich would be better than Ron Paul in re-establishing Constitutional limits on the Federal state.

CORRECT: Gingrich has a proven political record. He went up against the FED central banking system by passing balanced budgets He pushed through welfare reform against stiff opposition. Best of all, he brought about the power change in the U.S. House. He made no friends by doing this either with the Democrats, nor with the Republican Party Establishment. It didn't take those two long to oust Gingrich as the Speaker of the House.

On the other hand, Ron Paul is a politician who talks a lot about restraining the federal government, but in his decades as a member of the U.S. House he has shown an inability to built coalitions or to cut the power of the federal government in any way. As an educator and "Pied Piper" for the "cause", Ron Paul is commendable. As a politician, he is unremarkable.

Your belief here is so far outside reality I don’t know where to begin. So I won’t.

17) 'John Bolton would make an excellent Secretary of State.'

CORRECT: I see John Bolton as a logical, knowledgable individual who can express himself well on a wide range of foreign affairs. He would make an excellent Secretary of State under a President Gingrich.

We can agree that he would be a perfect Secretary of State for Gingrich. The result will be a continuation of the same horrendous foreign policy that we have lived for several decades.

18) "The greatest nightmare for the central bank crowd is a "President Newt Gingrich"."

CORRECT: See Item 16)

STUNNING: See my response to Item 16)

19) "The Republican establishment... is hell bent to prevent Newt Gingrich from changing the monetary system to return to "free market" capitalism."

CORRECT: The Democrats and the Republican Party Establishment see a "President Gingrich" as someone who would threaten their FED central banking system by promoting the establishment of a parallel redeemable currency. This would be to the of benefit of the average American, but it would be to the detriment of the monetary elite.

Newt Gingrich has never said a single word against the Fed, unless it was to parrot Ron Paul in this election campaign. To believe he would somehow be a challenge to the power of the Fed is dreamland cubed.

"Slop not fit for a pig, I would say."

This particular comment potrais you to have the brain of a mosquito, which I suspected long ago. You just proved it again.

We will each stand in judgment one day, Ingo. One of us for supporting force and coercion, the other for voluntary relationships. I will take my chances.

Hey, BM... ..I like to squish bugs... .. (Bionic Mosquito, what a joke... ..)

Ingo, I have been squished many times. Being bionic, they are able to put me back together again….

Communication, Cooperation, and Prices

2012-01-12T06:22:00.000-08:00

http://www.thefreemanonline.org/headline/not-just-what-but-how/

Prices, freely arrived at, are the greatest communication tool invented by man.

The process of price discovery in the market is one that brings people together in a manner that breaks down barriers standing in the way of a cooperative, civil society. Price discovery enhances cooperation.

Profit and loss (success and failure) ensures that resources are best utilized, and utilized by those who demonstrate the ability of good stewardship. Profit and loss is the best tool for conservation of resources.

Every government dictate, action, and regulation disrupts these mechanisms, thereby diminishing cooperative communication, civil society, and conservation of resources.

Beyond Greed and Scarcity, by Bernard Lietaer

2012-01-07T06:30:00.000-08:00

I have posted the following at The Daily Bell: http://thedailybell.com/3434/Austrian-Economics-and-Religion

Following is taken from an interview with Bernard Lietaer in June, 1997. The interview can be found at:

http://www.yesmagazine.org/issues/money-print-your-own/beyond-greed-and-scarcity

Where a quote is attributed to “Sarah,” she is the interviewer.

BL: …we can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies.

BM: I think this is a novel idea. I wonder why every two-bit dictator in Africa hasn’t thought of this: print enough money and scarcity will disappear. Why should the starving suffer if the only thing standing between them and a hot meal is a printing press? I think this has never been tried anywhere.

BL: Information technologies increasingly allow us to attain very good economic growth without increases in employment.

BM: Haven't we heard this line with every advancement of technology? The telegraph put the pony express out of business. Was that the end? Employment went downhill from there? Do we really have unemployment today because of Amazon and EBay?

BL: A study done by The International Metalworkers Federation in Geneva predicts that within the next 30 years, 2 or 3 percent of the world's population will be able to produce everything we need on the planet. Even if they're off by a factor of 10, we'd still have a question of what 80 percent of humanity will do.

BM: Of course, we could each work 3 days per year and vacation for the remaining 362 – we could just job-share, thus ensuring employment for all, while at the same time achieving tremendous time for leisure.

What a wonderful life this would be; I hope The International Metalworkers Federation in Geneva is correct about this.

But if this is a problem for BL, we cold simply require that every individual can only eat food that he produces himself. That will ensure everyone is employed.

BL: I believe, however, that complementary local currencies are a lot better suited to developing cooperative, local economies….Every fortnight in the Ariege, in southwestern France, there is a big party. People come to trade not only cheeses, fruits, and cakes as in the normal market days, but also hours of plumbing, haircuts, sailing or English lessons. Only local currencies accepted!

BM: If this is cooperative (voluntary), I am all for it. I guess this proves that even a fruitcake this nutty can have its uses: perhaps a re-gift, or a doorstop.

BL: Local currency creates work, and I make a distinction between work and jobs. A job is what you do for a living; work is what you do because you like to do it.

BM: WHAT?

BL: For example, in France you find people offering guitar lessons and requesting lessons in German. Neither would pay in French francs.

BM: Why not?

Sarah: So you're suggesting that scarcity needn't be a guiding principle of our economic system. But isn't scarcity absolutely fundamental to economics, especially in a world of limited resources?

BL: My analysis of this question is based on the work of Carl Gustav Jung because he is the only one with a theoretical framework for collective psychology, and money is fundamentally a phenomenon of collective psychology.

BM: No, money is fundamentally a phenomenon of the desire to divide labor. Without the division of labor, we can all go back to scraping our existence from the earth every day. Is this what BL is getting at? I can’t wait to find out.

BL: Now let's apply this framework to a well-documented phenomenon - the repression of the Great Mother archetype. The Great Mother archetype was very important in the Western world from the dawn of prehistory throughout the pre-Indo-European time periods, as it still is in many traditional cultures today.

BM: Wait a minute, I am afraid I know where this is going….

BL: But this archetype has been violently repressed in the West for at least 5,000 years….

BM: Does he mean the “archetype” of scraping a daily existence, being attacked by beasts, foraging for food, with a life expectancy of what, exactly? And, while a trivial point to some (but rather important to 99.9% of the 7 billion people on this plant): exactly what was the population on earth that was supported by such an “archetype”?

BL: So it should come as no surprise that in Victorian times - at the apex of the repression of the Great Mother - a Scottish schoolmaster named Adam Smith noticed a lot of greed and scarcity around him and assumed that was how all "civilized" societies worked.

Sarah: Wow! So if greed and scarcity are the shadows, what does the Great Mother archetype herself represent in terms of economics?

BL: Let's first distinguish between the Goddess, who represented all aspects of the Divine, and the Great Mother, who specifically symbolizes planet Earth - fertility, nature, the flow of abundance in all aspects of life. Someone who has assimilated the Great Mother archetype trusts in the abundance of the universe. It's when you lack trust that you want a big bank account.

BM: I will mimic Sarah here…WOOOWWWW. Where to begin? It appears all we have to do is believe in the Goddess and the Great Mother, and we will be free of scarcity and want. We won’t need a big bank account.

Memehunter, I will gladly relieve you of your bank account. Again, I can have my lawyer draft an agreement on Monday.

BL: We can, however, design a monetary system that does the opposite; it actually creates long-term thinking through what is called a "demurrage charge." The demurrage charge is a concept developed by Silvio Gesell about a century ago. His idea was that money is a public good - like the telephone or bus transport - and that we should charge a small fee for using it. In other words, we create a negative rather than a positive interest rate.

BM: How does the spending of wealth create long term thinking? Long term thinking results in saving, not spending.

How is money a “public good”? This belief is enough, even without all of the other nutty ideas in this interview, to cause me to call Bernard a monetary crank.

Sarah: Has this ever been tried?

BL: There are only three periods I have found: classical Egypt; about three centuries in the European Middle Ages, and a few years in the 1930s.

In ancient Egypt, when you stored grain, you would receive a token, which was exchangeable and became a type of currency. If you returned a year later with 10 tokens, you would only get nine tokens worth of grain, because rats and spoilage would have reduced the quantities, and because the guards at the storage facility had to be paid. So that amounted to a demurrage charge.

BM: This isn’t demurrage; this is a charge for spoilage and payment of the guards. Bernard should understand his own words before he speaks.

BL: In Europe during the Middle Ages - the 10th to 13th centuries - local currencies were issued by local lords, and then periodically recalled and reissued with a tax collected in the process…. Practically all the cathedrals were built during this time period. If you think about what is required as investment for a small town to build a cathedral, it's extraordinary.

BM: I do often think about how such cathedrals were built in a time when the general population was otherwise in great want of food and shelter. Now I know – their lords stole the money from them.

Bernard does not address the example of the 1930s. I will assume it was in Austria as suggested by Anthony Migchels on 01/07/12 07:44 AM. I have already addressed this, but will do so again here for completeness: In a crisis (as an important aside, one brought on by the state) the strangest things can become... popular.

Dr. Fekete, Please Help

2011-10-20T08:35:00.000-07:00

http://thedailybell.com/3109/Antal-Fekete-What-Chinese-Unemployment

Dr. Fekete

I am writing to you in order to bring to your attention the fact that you have at least one very confused disciple – but then I repeat myself.

Please contact Ingo Bischoff. He needs remedial coursework in your “school” of economic thought. While I find myself in disagreement with some concepts for which you are well known (for instance the fallacious monetary theories behind real bills), I often find myself in agreement with you on more traditional topics. It is to these that I refer here.

I quote from the above commentary:

“Many a gold bug has the wrong strategy. He buys high and sells low. He cannot kick the bad habit. He should buy low and sell high.”

In reading this statement (as well as the general tone of your commentary) it seems you are quite comfortable with the idea that gold has a price. Of course, I am also comfortable with this idea as well. I see the price quoted 24 hours a day in such places as, well…this site, for example.

Please sit down before reading the next statement: Mr. Bischoff believes gold has no price. Yes, I too am flabbergasted by his statement. However, approach him with caution on this, as he can turn verbally abusive when he finds he has no logical response to his beliefs of fantasy…but again, I repeat myself.

And to a second point from your commentary:

“At this point the Friedmanite bunk was announced by professors who were the beneficiaries of the purge of old-line economists at American universities that a "weak" currency is boon to the country. It makes exports cheap while making imports dear….to see the Friedmanite bunk in the true light of science we need only recall that devaluation always makes the terms of trade of any country deteriorate. The euphoria of exporting more will last only as long as the stockpiles of imported ingredients used by the exporting industry last. Ever after, the country will have to pay more for the imported ingredients and will also get less value for units of its exports…”

I, course, agree completely with your line of reasoning, and have written so before on this subject here at the pages of DB:

http://thedailybell.com/2501/Ways-to-Invest-as-Faith-in-Fiat-Money-Withers.html

I have extracted my earlier comments here:

http://bionicmosquito.blogspot.com/2011/06/weak-currency-is-good-for-exports-not.html

I will cite only one exchange from the DB thread:

BM: What good is it to an exporting firm to have a week currency, when most of the inputs to production (commodities) have global prices?

IB: What kind of ridiculous statement is that...??? How can you even try to deal with it...???

You can see, Dr. Fekete, that Mr. Bischoff considers your statements on this subject as ridiculous, as you are today saying nothing different than what I wrote several months ago.

Please help him before it is too late.

Kind regards

Bug

Rothbard and Free Banking

2011-10-17T04:26:00.000-07:00

From "The Mystery of Banking", Chapter 17, section 3:

HOW TO RETURN TO SOUND MONEY

Given this dismal monetary and banking situation, given a 39:1 pyramiding of checkable deposits and currency on top of gold, given a Fed unchecked and out of control, given a world of fiat moneys, how can we possibly return to a sound noninflationary market money?

The objectives, after the discussion in this work, should be clear:
(a) to return to a gold standard, a commodity standard unhampered by government intervention;
(b) to abolish the Federal Reserve System and return to a system of free and competitive banking;
(c) to separate the government from money; and
(d) either to enforce 100% reserve banking on the commercial banks, or at least to arrive at a system where any bank, at the slightest hint of nonpayment of its demand liabilities, is forced quickly into bankruptcy and liquidation.

While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.

-----------End of quoted passage----------------

It strikes me that Rothbard is contradictory in this conclusion, at least if free banking is defined in the manner that I understand the term "free." Free, to me, means free. No "shoulds", no "musts". Market participants will decide the manners by which they reach agreement for money, banking, and credit - that is "free" in my book. This cannot be reconciled with Rothbard's item (a) and (d) above. Who will return us to a gold standard? How? By what means? Who will enforce 100% reserves, or alternatively quickly "force" violators into bankruptcy? With what enforcement ability?

I will begin at the end.

"While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative."

Setting aside the idea that FRB is "fraud" (if it is known, it isn't fraud; if it is fraud, those harmed can pursue recourse in some manner), 100% reserves cannot be "enforced". Enforced by whom? The little I know of Rothbard, he would not recommend the state be the enforcement arm (nor would I). But if not the state, who?

Absent the state as the enforcement arm, what is left besides market enforcement? And if it is market enforcement, what stops any form of banking and credit to evolve, if it acceptable to the market? Nothing should.

What of bad, or "fraudulent" practices? Cannot the market sort this out? It is true, if a bank is found as untrustworthy in its money and lending practices, cannot its customers go elsewhere? Is this not possible in all other aspects of markets where reasonably free from regulation and government interference?

As to item (b), abolishing the Federal Reserve System, I think it would suffice to remove government from money - no legal tender, no FDIC, no tax consequences for choice of currency. In such an environment, the current Federal Reserve System will cease to exist, as it cannot survive in a free market.

But does this mean there will be no bank cartels formed? I think not. Market efficiencies will likely cause banks to form in such cartels. However, absent the state as enforcement and insurance arm, the market will certainly control excess.

Rothbard's final statement (above) is correct, and is what attracted me to this section. Even if one assumes FRB is bad, it is irrelevant in a free banking environment. Market regulation will suffice, by this I mean regulation by the free choices made by market participants. If participants find a bank is inflating, they are free to move to other institutions that adopt other schemes. Free banking is not just an "attractive alternative", it is the only alternative.

Banking is far less complex than most products brought to market. Individuals are quite capable of deciding which car to buy. They certainly can figure out where and how to bank - without any "shoulds" or musts" thrust upon them by strangers.

Items (a), (b), and (d) in Rothbard's list above are not necessary. Item (c) will suffice. Get the government out of banking and money. The market will resolve the remaining issues.

Hope for Mr. Hultberg?

2011-10-10T06:10:00.001-07:00

http://thedailybell.com/3059/Nelson-Hultberg-The-Ron-Paul-Revolution-Past-2012

Mr. Hultberg

Thank you for NOT suggesting that Dr. Paul adopt your dangerous notion of supporting Fed inflation via a constant 4% increase in base money. If this is an indication that you have finally rid yourself of this destructive notion, I applaud you for this. Absent this cockamamie plank, you may yet find Dr. Paul as valuable asset to your cause.

"His [Dr. Paul's] watchword is "steadfast adherence to principle." Compromise if need be on the means of implementation; but never on the principle itself. Never on the Constitution. Never on the rights of man."

Instead of your 4% rule, perhaps you could adopt Dr. Paul's "compromise" on the issue of the Fed: remove legal tender, remove monopoly over money and banking, allow full and free competition in money, remove tax consequences as to choice of use of money and currency, remove government backing of any and all money and banking schemes. Then the Fed will eventually die on its own.

No 4% rule needed on which to pin false hopes (and certainly ensure further economic disaster).

Following is (apparently) Mr. Hultberg's reply to my comments:

Posted by Nelson on 10/10/11 11:26 AM

To: bionic mosquito.

Sorry AFR has in no way abandoned the 4% auto-expansion plan. It is the only way to stop the Fed at this juncture in history from running roughshod over the quality of our currency. The American voters' eyes glaze over when you try to tell them about free-market banking and the monetary intricacies of gold money systems.

I know; I have been at this task for over ten years (check out my articles on the subject). Such reforms will take decades to bring about.

The history of money and economics shows clearly that if left relatively free, an economy will grow its goods and services at roughly 4% annually. History also shows that in a free economic environment (which we had in the 18th and 19th centuries), gold was mined and entered into the economies of the West at roughly 4% annually. Sometimes at 3% and sometimes at 5%, but over the long haul, it averaged 4% annually. When this takes place growth of money and growth of goods balances and brings about a 0% price inflation rate. Thus the Friedman plan's 4% rate for monetary growth.

We certainly support Paul's plan to remove legal tender and eliminate the Fed's monopoly. AFR is working with Edwin Vieira on just such policies. But we are very doubtful that the power elites and their media lapdogs will let 'legal tender' and government monopoly of money go anytime soon. But we are sure that we can convince the people to force the Fed by law to computerize money growth at 4% annually.

No one in the AFR camp has ever said this is a perfect or ideal plan, or a permanent plan. It is, however, a "workable" plan. It will get the issue of money and the Fed's debasement on the table in front of 70 million voters in language they can understand.

This is something that the convoluted monetary explanations of gold money and free-market banking will be hard pressed to do. Gold and free-market banking are definitely the ideals that we need to work toward.

(If you had ever read my works on the subject, you would see that no one is more in support of such policies than I); but they are going to require massive education over a generation to enact. We prefer to save America today with some "imperfect" pragmatism, rather than let her be led into globalist tyranny because the State's libertarian opponents knew nothing more to do than naively talk "instaneous idealism" to the voters.

End of Mr. Hultberg’s reply.

I did not comment further on the DB site – Mr. Hultberg has a knack of turning quite aggressive and alienating, and I didn’t want to start down that path.

Suffice it to say his reply is full of strawman arguments. His complaints about idealistic libertarians can be equally (or more so) applied to those who believe politics can be sustained for the decades necessary to bring about a gradual dismantling of the power of the Fed.

Tibor Machan at The Daily Bell

2011-10-02T07:00:00.000-07:00

http://thedailybell.com/3020/Anthony-Wile-Tibor-Machan-on-Private-Morality-Versus-Government-Perfectionism-and-Who-Wins-

TM: We need more judgmentalism when it comes to opponents of the free society and free markets, not less.

BM: Quite true, and we should label those who advocate force in relationships as the immoral beings that they are. It ain’t an ad hominem if it’s true and relevant.

TM: I am disappointed with Reason Magazine adopting the Kantian line since the magazine was founded precisely to counter this trend of thinking.

BM: Long ago, Reason Magazine was one of the principle building blocks of my education regarding freedom and liberalism. I still have the back issues somewhere in the trailer. However, not quite as long ago, the magazine took a turn for the (much) worse.

TM: Unlike government, the private sector demands morality because it doesn't administer coercive laws.

BM: It is quite funny when one considers the accepted wisdom that force should be used to ensure morality. Well, actually not so funny….

TM: Governments can help in keeping the peace and defending society, just as referees at games uphold the rules.

BM: To have government (monopoly of legalized force in a given jurisdiction) so limited is not possible in the sense we use the word “government” today. Of course, in the context of a voluntary anarchic or panarchic society, TM’s statement could be a valid concept.

TM: Those who are government activists don't proclaim it. They disguise what they're after. They have to do so in this country because traditionally American citizens have not been well disposed to government activism, even though there's quite a lot of it.

BM: That it has worked in America despite the traditional disposition against government activism is a tribute to the state funded public education system. Americans are taught that Patriotism equals worship of the state, and supporting state control over many aspects of life.

TM: The idea is that you don't want to use brute force to move people toward a society based on government activism. Instead, you want to nudge people, to move them in tiny increments so they do not find it worth their while to object, or at least not forcefully....Nudging can take place in numerous ways but a lot of it has to do with creating social norms that people will feel they have to conform to.

BM: The most important nudging is the implementation of publicly funded schooling. “Of course it is good that all children have an opportunity for education” they proclaim, when in fact it is the opportunity for proper indoctrination. “The state will educate your children.” Talk about a nudging…right over a cliff.

DB: The thrust of Austrian economics and the freedom movement generally is one that is profoundly objectivist in the Randian sense. It insists that people are perfectly equipped to make sound judgments on their own and to pursue their lives using their senses in a rational way.

BM: I am not sure it can be said that people are “perfectly equipped” for much of anything – people aren’t gods. However, as people aren’t perfectly equipped to make sound judgments on their own behalf, it is therefore certainly true that government bureaucrats and technocrats (being people, after all…well, most of them) CANNOT be better equipped to make sound judgments on behalf of complete strangers than those strangers can make for themselves.

More accurately, I believe the statement can be properly made that no one is better able to make sound judgments for his own well being than the individual himself, and if the individual is physically or mentally incapable, then left to family, close friends, and local institutions.

Land Value Tax

2011-09-02T02:48:00.000-07:00

http://thedailybell.com/2873/Telegraph-Discovers-Cancerous-Debt-Levels

I find the discussion of "Land Value Tax" quite entertaining.

I have commented before that, if developed in a voluntary manner, this method of providing for certain services is preferable to me as compared to the evils of an income tax, for example.

The discussion of the idea of "owning" land (at least in the discussion with Adam on one side, and DB / Danforth on the other) as almost irrelevant - like how many angels can dance on the head of a pin - if I understand the different viewpoints properly:

All seem to agree that the individual(s) occupying the space has rights of use and disposal. This would certainly include the right to enter into ONLY voluntary means of procuring (even so-called "common") services or otherwise encumbering the land. As Adam has pointed out, he does not advocate forcing a non-payer off of his property, nor does he advocate a tax (to me meaning an involuntary contract / payment) of any kind.

If this is so, I guess it doesn't matter to me if Adam says I cannot "own" land, and JD / DB say otherwise. I can use and dispose of my land. I can pass it on to my heirs or anyone else I like - for consideration or not, and without a tax consequence. No one can "force" a tax on me, or use the monopoly power of the state to kick me out. If I find value in the activities of the community, I will likely pay the "land value tax". If I do not choose to pay, the community might use persuasion to get me to pay, maybe publish my name in the paper if I don't, but names can never hurt me... .as the saying goes.

Ingo, on the other hand, has previously advocated and applauded the use of force by the state - even unto death of the "subjects" - in order that the state can preserve its interests. Therefore, in his hands, I would find this concept of "you cannot own land" both deplorable and dangerous.

Unfortunately, in both this world and any likely future world, there are more Ingos than there are Adams.

Will the Fed Reverse the Money Pumping?

2011-07-29T07:36:00.000-07:00

http://www.thefreemanonline.org/columns/tgif/the-new-fed/

"We may ask: Will we face a bad inflation when those interest-earning bank reserves now sitting in Fed accounts are finally released into the economy? Not if the money is removed first. This is not as unlikely as it may seen."

It is very unlikely. Without this injection, the banks are insolvent. They are insolvent because many of the assets they hold are not generating cash and are therefore not worth the mark-to-fantasy values at which they are held.

In other words, there are no excess reserves in truth; they are only excess because of the false accounting.

Additionally, how will the Fed unwind? Who will buy the rotten assets that the Fed took on its books? The Fed took these at what is almost certainly face value (or close to face value) - far above the worth at the time or at any time today or in the future. Who would pay face value to buy these from the Fed? If the Fed sold them all, they will recover only a fraction of the money that was injected when the Fed first bought or swapped for the assets.

There is no way the injection by the Fed is reversed.

The Weekly (Gold) Standard

2011-07-26T21:02:00.000-07:00

http://www.weeklystandard.com/articles/gold-standard-or-bust_577314.html?page=1

Who would have thought that one would read the following headline at The Weekly Standard:

"Gold Standard or Bust: Fixing the Dollar Before It's Too Late"

It is written by Judy Shelton. She has written often on this subject of backing the dollar with gold. So that she wrote on this again is not a surprise, however that it is in The Weekly Standard is a stunner.

Of course, a government managed gold standard is not a standard to rely upon - better than what we currently have perhaps, but equally open to politics. We have seen this movie before - see Roosevelt in the '30s and Nixon in 1971.

I notice Ms. Shelton does not mention the connection of the fiat dollar and US empire. She also mentions Palin and DeMint, but somehow completely avoids Ron Paul (it cannot be from ignorance that one does not mention Ron Paul in an article about gold backing the dollar, where other politicians are mentioned. It can only be by design). In any case, perhaps these reasons are why the commentary made it past the editors at the Standard.

Or, one can read this as one more hint of the direction we will eventually be led - some sort of government managed kind-of-like gold standard.

(Not) Missing Milton Friedman

2011-07-25T13:59:00.000-07:00

I have The Economist to thank for this commentary:

http://www.economist.com/blogs/democracyinamerica/2011/07/free-marketeers-and-inflation

"The influence of this kind of [hawkish inflation] talk has been augmented powerfully by a certain moralising strand of Austrian economics, which is hostile to the very idea of fiat money, and encourages the idea that its entire purpose is to expropriate savings and monetise government debt."

But that IS the entire purpose. It was true in 1913 when the Fed was brought to creation, and it is true today. If the events of 2008 don't prove this unquestionably, then I would suggest a willful ignorance or worse on the part of the speaker.

But wait! What about smoothing out the business cycle, controlling inflation, reducing unemployment? What about all of THOSE things?

Distractions, all distractions. First and foremost, the Fed has failed miserably at all of these so-called objectives. To say otherwise is either willful ignorance or worse. However, it is the Fed that has been the PRIMARY engine of the business cycle (could there be such a thing in a free market for money?), and yet is for some reason hailed as the salvation from the evil it creates!

"Accordingly, macroeconomics as a discipline is often seen as pseudo-science that exists mainly to justify technocratic social control."

Well, macroeconomics is seen this way because it is true. All action is Human Action, taken by the individual based on circumstances and factors that are directly impacting the individual. There is some form of lunacy in those who accept, for example, the idea that financial prudence when taken by an individual is somehow catastrophic for the whole.

"To some, even to play the game of identifying optimal rules for the centralised state monetary authority is to give away the game to the Keynesian social planners."

But it IS social planning. What else can you call it? A small group of individuals is centrally planning the type, quantity, and price of money. It is central planning of the most fundamental commodity in an economic system. If they centrally plan this foundation, what is left to the market?

It is central planning, Soviet style. Just because they don't teach it this way in school does not make it so.

""As in many other spheres," Rothbard wrote, "[Friedman] has functioned not as an opponent of statism and advocate of the free market, but as a technician advising the State on how to be more efficient in going about its evil work.""

Imagine the mind it takes to develop and implement payroll tax withholding. This is the work of Friedman. Is it any wonder he was the "accepted" free market voice in the allowed dialogue? He had free reign to speak his mind, as long as he didn't question central banking and public funding of education. He did neither - however, through his creation of tax withholding and public school vouchers, he certainly did help the state go about its evil work.

"Rothbard's fulminations notwithstanding, Mr Friedman died a beloved figure of the free-market right."

I used to be one who "beloved" Friedman. Until I understood money in a proper, free-market context. And, until I learned about the father of the payroll tax. And until I concluded that school vouchers, while posing as "choice" actually further encroach the state into education. Yeah, besides these, I guess he was free-market.

"Yet it does seem that his influence on the subject of his greatest technical competence, monetary theory, immediately and significantly waned after his death."

Yes, because it all blew up immediately after his death.

Nothing like 2008 was ever supposed to happen when wizards were in charge of centrally planning money. The so-called Chicago School should be relegated to the dustbin where it belongs. Events of the last few years should discredit this idea forever, just like the certain failures due to the spending boom now taking place around the world will end up destroying Keynes once and for all...assuming anyone is actually paying attention.

"When a significant portion of a political movement's activists believe that the whole point of central banking is "systematic robbery", and that inflation is the means by which this robbery takes place, widespread, reflexive opposition to inflation is not surprising. "

Yes, precisely.

"Now, I don't claim that the right, loosely defined, is chock full of Murray Rothbard fanatics."

Sadly, not yet. But we are growing in number.

"And whatever it is that is keeping Ben Bernanke's Fed from loosening up, it's not the enduring intellectual legacy of Murray Rothbard."

WHAT? Ben Bernanke is somehow being kept from "loosening up"? Have you seen the Fed's balance sheet lately? Do we have any idea about the guarantee's and deals the Fed has cut in the last three years?

"If only the free-market right still had such a powerfully persuasive "technician advising the state how to be more efficient", our economy might now be slightly less screwed. Maybe it would help were "advising the state to be more efficient" less widely considered "evil work".

An efficient state, in any sense of the word, is inherently impossible as any student of free markets, capitalism, and incentives would understand.

Our one saving grace is that this is true.

Reckless Endangerment: A Review of a Book Review

2011-07-19T12:21:00.000-07:00

http://fullcomment.nationalpost.com/2011/07/16/rex-murphy-america-destroying-itself-from-within/

From Rex Murphy: "If America falls, it will not be from external enemies. It will be by her own hand. That is the inescapable conclusion one carries away from a reading of Reckless Endangerment, an account of the ferocious financial crisis that exploded in 2008 and through which, to this very day, the United States is still struggling to find safe and solid ground."

So far, so good.

"First, a note about Reckless Endangerment’s authors. They are, respectively, Gretchen Morgenson, a Pulitzer Prize-winning New York Times business reporter, and Joshua Rosner, a financial analyst — solidly competent and authoritative both. Reckless Endangerment does not come, in other words, out of the wild territory of hyper-partisanship or the backwaters of conspiracism."

Well, we can also surmise where such authors' will NOT lay blame, but more on that in a minute.

"What brought on the sub-prime crisis, as the meltdown of 2008 has become known? ...The most obvious villain is the one we all know. Wall Street is everything its wildest detractors want to label it....It is a dog of greed and self-interest."

Yes, it is greed. You know, that human characteristic that was never before known to mankind before 2008. That flaw that never exists anywhere but on Wall Street.

But wait, the book is not so shallow. In a dogged desire to find the root cause, the authors dig deeper as any good NY Times reporters would do: "But equally deserving of blame are the two federal institutions somewhat infantilely known (from a phoneticization of their acronyms) as Fannie Mae and Freddie Mac"....and "which elected officials did their bidding. If there is ever a Mount Rushmore for hypocrites, the face of Democratic Congressman Barney Frank — Fannie Mae’s friend in every sordid scrape (until nothing could be hidden anymore) — should be the first to go up."

That's it. Greedy Wall Street, Fannie and Freddie and the politicians that supported these institutions. There is some deep reporting for you.

Where did those characters get the trillions of dollars needed to run such a scam? Where did they get assurance that the failed bets would be made whole? Where did investors get the idea that some institutions are too big to fail?

How could almost every institution make the exact same wrong bet at the same time and in the same direction? What signals were they reacting to that told them this was OK?

Where is it that the authors do NOT lay blame? I will give one hint: End the Fed.

The World From Berlin

2011-07-17T16:53:00.000-07:00

I don't mean to pick on Berlin, or Germany. This is taken from an article from Spiegel Online, and the article addresses the issue of the debt ceiling debate in Washington. I will use the article to burst many bubbles.

The original article can be found here:

http://www.spiegel.de/international/world/0,1518,774666,00.html

Quoted material is taken from the article.

"The US needs to raise its debt ceiling, currently set at $14.3 trillion (€10.1 trillion), by Aug. 2, otherwise the country will run out of money"

Now, this is not true. The US will NOT run out of money. The US will run out of borrowing capacity. It is quite a different issue. Tax receipts will continue to roll in, only the spending cannot be supplemented via further borrowing. This is an obvious point, and that the author neglects it suggests either financial ignorance or purposeful manipulation. Neither is acceptable.

The US can certainly continue to meet its interest payments and service the debt. The US can then cut expenditures to meet tax revenue. It is not so hard, once one wraps his mind around it. Millions of people do this every day, in both their personal and business lives.

There is no need to talk about default. The best thing that could happen in this issue would be to cut government expenditures to meet revenue (actually, the best thing would be to shrink or eliminate "government" as it is currently understood, but that is another subject).

Frankfurter Allgemeine Zeitung writes: "The politicians in Washington are playing with fire. A swift compromise is needed. Nobody needs a US default."

Certainly, taxpayers and their children and grandchildren, while perhaps not in "need" of "a US default", certainly would be better of for it, assuming that failure to raise the debt ceiling would even result in such an outcome.

Süddeutsche Zeitung writes: ""It's actually unimaginable. On August 2, the US could, for the first time in its history, become insolvent..."

Again, failure to raise the debt ceiling does not necessarily need to result in default. More importantly, it would NOT be the first time for the US to default - not even in the last 100 years.

Walk with me down memory lane:

Roosevelt confiscated gold, just before changing the value from $20 / ounce to $35 / ounce. A default on the promise to redeem currency for a fixed amount of gold.

Nixon defaulted on the promise to foreign governments to exchange gold for dollars in 1971.

Basically, every day since Nixon's default, the US has added to the default - with the dollar now buying only 1 / 1600th ounce of gold.

Die Welt writes: "In the middle of the poker game between the two political parties to prevent a national default on Aug. 2, polls show that 77 percent of Americans believe that they live in the world's greatest system of government."

Yes, it is a farce that so many Americans believe this. On the other hand, if the borrowing was to be stopped permanently, those 77% might just be right!

"The [Tea Party] movement sees traditional politics as corrupt and regards Washington as a den of iniquity."

On this point, the Tea Party (to the extent "members" actually believe this) is correct.

"Compromise, they feel, is a sign of weakness and cowardice."

Actually, compromise on the issue of the debt ceiling is a sign of certain national (in every sense of the word) bankruptcy (in every sense of the word).

Bild writes: ""Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it's simply not possible to stop taking on new debt overnight."

Who said anything about overnight? This problem has been a long time coming, and known to all.

Roger Clemens and Justice

2011-07-17T16:46:00.000-07:00

It can certainly be said that justice has been served in the ongoing torment of Roger Clemens. Well, at least I can say it.

Why is an act of voluntarily doing something to one's own body a crime? Why should such a thing be investigated by "authorities"? Yes, don't say that the crime was that he lied to the "authorities", given that the "authorities" had no business in this matter in the first place.

I will not re-state many of my views of this general issue of steroids in baseball. I have written on this previously, as regarding Barry Bonds. The commentary can be found on this site:

http://bionicmosquito.blogspot.com/2011/03/poor-barry-bonds.html

I will only mention that this issue, at most, is one between employee and employer - nothing more. It should have stayed that way.

This is why I say that justice has been served in this case. It was none of the government's business to begin with.

2011 Women's World Cup

2011-07-11T17:24:00.000-07:00

I do not intend to write a story about the match against Brazil yesterday. Enough (yet not enough) has been said about the wonderful finish to the game.

I only would like to touch on my view of the events.

Many will take pride in the nationality. "USA, USA, USA" and all that. Because some women happened to be born in or otherwise have some connection to a specific geography, I guess.

I saw eleven women (ten, actually) that never gave up. Stunning to see the tying goal with perhaps one minute to go in over 120 minutes played. When all legs should be lost, even if hope might not be (no, I don't mean the goalkeeper).

One may not be able to take pride in another's accomplishment; so I will take this joy: One might say that there is no hope, it is too late, etc., in any personal or group pursuit. But for this group of women, they did not buy this, not on this day. I am happy for them, as a team and as individuals.

The color of uniform is secondary, the passport used for travel is irrelevant. Whoever they are and wherever they are from, this group of ten did something truly remarkable.

It is enough. No need to turn it into a false form of patriotism.

The Curse of Public Education

2011-07-07T08:11:00.000-07:00

Note: This is the first time I have written here on this subject. It is also my 100th post. This seems fitting.

http://thedailybell.com/2628/Hey-Teachers-%E2%80%A6-Leave-Them-Kids-Alone

As I have mentioned before, I am torn as to which is the worse evil foisted on the people of the West: central banking or central education. I remain torn.

It is criminal to think that students nationwide should somehow fit into a single mold. Don’t tell me about charter schools, magnet schools, private schools, etc. Yes there are differences, a few major, almost all minor. But for 98% of the student population, the differences are immaterial. Learn to be obedient, learn by memorizing trivialities, learn to conform. Or face punishment and be ostracized.

And then we wonder (on this site and other alternative-view sites) why most people fawn over what their political “leaders” tell them.

John Taylor Gatto has written several books on this subject. He was an award winning teacher in New York City; often railed against by various administrators for his practices of actually “educating” students as opposed to “schooling” them. I offer some comments from one of his books, wonderfully entitled “Weapons of Mass Instruction.”

In it, he often mentions the names Rockefeller and Carnegie as men behind the significant increase in clamor for public funding and centralization of education in the US. He identifies the early “pioneers” of this movement, often funded with endowment money from (or otherwise connected to) the fortunes of these two industry titans.

The following are all points taken from this book:

He quotes H.L. Mencken: “The aim [of public education] is simply to reduce as many individuals as possible to the same safe level, to breed and train a standardized citizenry, to put down dissent and originality”

Professor Arthur Calhoun wrote that the fondest wish of utopian thinkers was coming true: children were passing from blood families “into the custody of community experts.”

Gatto cites statistics on literacy as measured by US Army tests of potential recruits – literacy defined as a fourth grade reading proficiency. From WWII to the Korean War, literacy dropped from 96% to 81%. By Vietnam, it fell to 73%.

In 1940, national literacy for blacks was measured at 80%; despite ALL the disadvantages to those in this population, four out of five were literate. Six decades later, the number fell to 60%. Twice the number were now illiterate.

All this despite the money spent on schooling in real terms having increased by 350%.

From a student-teacher letter to the editor in 1995: 113 years earlier, fifth graders in Minneapolis were reading Shakespeare, Thoreau, Washington, Twain, Franklin, and many others. Today, this student teacher is told fifth graders are not to be expected to correctly spell: back, big, call, came, can (the list continues with 30 similarly “complicated” words).

According to William Harris, US Commissioner of Education from 1889 to 1906, the tool to build such a society [amicable folk waiting around for someone to tell them what to do] was psychological alienation. Alienate children from themselves so they could no longer turn inward for strength, alienation from families, traditions, religions, cultures – so no outside source of advise could contradict the will of the political state.

Gatto continues much further, obviously. If you weren’t already sickened by the centralization of education before you read one of his books, you most certainly would be afterwards – assuming you had an ounce of individuality left in you after years of regimentation.

I have referred to a statement by R.J. Rushdoony before; I do so again – but this time by quoting Gary North:

R. J. Rushdoony had little patience with conservatives who complained about high taxes. “They have tithed their children to the State, and then they complain against how much the government is costing them.” He thought all such tax protests would come to nothing. Well, not nothing, exactly. Mass inflation.

We suffer under central banking because we suffer under central education. Yet most parents are happy to be relieved of the burden of raising their children. The world is crumbling all around them and many don’t see it. Or if they see it, they are oblivious as to understand the underlying causes.

The state will educate your children. A more damnable concept cannot be invented (well, that and central banking). What should be seen as a curse, something to run from, is instead seen as a relief.

What is Inflation?

2011-07-06T07:28:00.000-07:00

http://thedailybell.com/2623/Antal-Fekete-You-Have-Never-Ever-Seen-an-Elephant-Fly

"It is absurd to claim that paper drawn on 100 ounces of gold is sound, while paper drawn on 100 tons of steel is not."

I have been thinking about the idea of "inflation" in a different manner, since ZenB (I think it was) asked me a question in the Salerno thread.

In a fully free banking / free money / free currency environment, would we even think of the term "inflation"?

I don't think so. I think we would think of profit and loss. I think we would utilize forms of money and banking and currency that were the most efficient, effective and stable within the context of the circumstance at the time and place. We would not speak of inflation: if our choice was sound, it will add to our profit. If not, it will add to our loss.

However, this does not eliminate the need to discuss and learn about sound practices. I like the title of Salerno's book "Money: Sound and Unsound." It is worthwhile to discuss and learn about sound money practices. One would not argue against the utility of a book entitled "Business Practices: Sound and Unsound."

People should certainly be free to use unsound practices in business and in money. In business, if they do this often enough they will see bankruptcy. In matters of money, the same would apply. In a free market for money, we would not speak of inflation, I believe. We would speak of losses due to the use of unsound banking and money practices.

History demonstrates that paper backed by gold is quite sound. Paper backed by steel is not quite as much. This doesn't mean a businessman cannot utilize paper backed by steel in his transaction. It only means it is left to him and his trading partners to suffer the consequences (just another form of dealing with bankruptcy) without consequences shifting to the broader public (again, only in the context of a free banking environment).

Real Bills and Flying Elephants

2011-07-06T06:18:00.000-07:00

http://thedailybell.com/2623/Antal-Fekete-You-Have-Never-Ever-Seen-an-Elephant-Fly

Comments in response to Dr. Fekete's editorial today at The Daily Bell.

AF: The bill and the cloth appear simultaneously and will disappear simultaneously. The former disappears when it matures, and the latter disappears when it is purchased by the ultimate consumer.

BM: So a real bill is not backed by gold (money), but is backed by merchandise. I know of no true hard money economist that the supports the view of money being backed by cloth (or flour).

AF: An increase in purchasing media that is matched by an increase of merchandise in urgent consumer demand is not inflationary.

BM: This is another theory that the central bankers use as an excuse to increase the money supply: the money supply must increase with the level of activity in the economy. It is a reason for man to substitute easily produced paper for true money.

As to not being “inflationary”, this is another trick of the monetarists. They speak of “inflationary” in terms of prices, but the true inflation (with all of the corresponding distortions and boom / bust cycle) come with changes in the money supply. Dr. Fekete is speaking of inflation measured in price increases, it seems.

Price increases are only one of the negative effects of monetary inflation, and perhaps not the worst. The worst is the transfer of purchasing power from the saver to the person who has first access to the funny money. This is called theft in normal society. It is apparently called real bills when one wants to hide the fact of this theft.

AF: The nature and origin of the discount rate are entirely different from that of the rate of interest.

BM: To the merchant, the economic effect is identical. Trying to make the legal distinction is irrelevant to the merchant’s cash flow.

AF: The two rates [the discount rate and the rate of interest] are completely independent of one another.

BM: No two rates are ever independent of each other in a relatively modern economy. All rates are relative to other rates. If the rate of one is significantly different than the other (adjusted for risk), the market will resolve this through pricing.

AF: Tradesmen processing semi-finished goods hardly ever pay cash for supplies to their suppliers. The prices they are quoted are not cash prices. They are "90 days net". The credit is part of the deal: you need not even ask for it. On the rare occasion when you don't need the credit you pre-pay your bill, having applied the discount to its face value.

BM: I am glad Dr. Fekete, at least, can see that real bills are credit, as he says so himself. He should teach his students accordingly. Some of his students do not learn very well.

Credit, not backed by gold (money). This is inflation.

Strauss-Khan: One Positive Outcome

2011-07-01T06:15:00.000-07:00

Today we have the news that the case against DSK may be falling apart. There is a wonderfully positive side to this story - beyond the certainly positive outcome for justice in the case.

On a global scale, I cannot recall a US prosecution go so horribly bad in such a public fashion. There have been only a couple of US based stories of such turnaround - the Duke lacrosse team comes to mind, but not many more.

Consider: A high profile arrest of one of the most well known financial actors on the world stage. Drama on the plane just moments before take-off. Perp walks, passport stripped, resign from the job, no more dreams of French politics.

And now, the case seems to have all fallen apart.

If one wanted to find a story to display the worst abuses of the US judicial system to the world, a better example could not have been created than the real-world story of DSK.

There will be discussion about the implications on French Politics, the conspiracy theories behind the story (anyone who DENIES a conspiracy here should be sized for a tin-foil hat). All of this is important.

But I find the exposition of the US judicial system to the scrutiny of the world to be the most fascinating and potentially most important part of the story.

The US judicial system is broken on many levels. There have been many stories known only by family and friends that demonstrate this. There are a few stories that hit a larger audience.

The story of DSK was the biggest story around the world on the day of his arrest. It has remained high-profile because of the financial drama around the world and the search for DSK's replacement at the IMF.

It is a story that was perfect in its design if one wanted to expose the faults of the US justice system to the ridicule of the world. This to me is the biggest part of the story today.

A Weak Currency is Good for Exports? Not!

2011-06-16T21:16:00.000-07:00

http://thedailybell.com/2501/Ways-to-Invest-as-Faith-in-Fiat-Money-Withers.html

Posted by bionic mosquito on 06/16/11 11:57 PM

"When the FED adds to the money supply through QEs, it cheapens the USD/FRN and makes U.S. products more competitive in world markets."

This mercantilist strategy is not so cut and dry. Japan has had one of the strongest currencies in the last several decades, and still runs a trade surplus. Germany as well, first with the Mark, now with the Euro. Meanwhile, the US has had a relatively weak currency over the same time, and has also seen its balance of trade grow worse during this same time.

It is often said: in order to consume one must produce. True as it is, the opposite is true as well: in order to produce, one must consume. In order to manufacture, one must buy raw materials.

What good is it to an exporting firm to have a week currency, when most of the inputs to production (commodities) have global prices? One might consider that the reason Japan is so competitive is that the strong yen has kept oil, steel and other raw materials needed for manufacture at much lower yen prices than what the US has realized with the dollar. As material and energy is often a majority of the cost of any manufactured good, it would seem a strong currency is of more benefit to an exporting nation than a weaker currency.

Posted by bionic mosquito on 06/17/11 12:13 AM

I will add, this idea of weakening a currency to improve exports gets even nuttier. Most manufacturers produce more for their home market than for export - this is especially true for small businesses, but consider even US auto manufacturers.

So, for the majority of sales, a weaker currency is devastating, as it inherently increases the costs of commodities that are priced globally - again, likely a majority of the COGS.

Nuttier still, big business can often work around this - it is easier for General Electric to locate a factory in China or Vietnam than it is for Joe's machine shop. This is true for countless reasons.

So the small guy gets fried, and the big guy can get around it by relocating manufacturing overseas AND pick up market share in the home market after the small guy files bankruptcy.

And we wonder why the US continues to lose manufacturing to foreign firms.

Ultimately one must conclude that this idea of a weak currency helping exports is only a Trojan horse; it is the advertised idea to make palatable for the masses that which is only good for big business. Just one more illogical theory in a long list of theories taught at the school for the economically gullible.

Hugo Salinas-Price and Free Coinage

2011-06-15T04:12:00.000-07:00

http://thedailybell.com/2497/Free-Coinage-Of-Gold-Silver--Then-And-Now.html

HSP: If silver is currently $36 dollars an ounce, a one-ounce silver coin can be successfully placed in circulation with a monetary, numeric face value of $60 dollars, which overvalues the silver contained in the coin.

These coins would be very useful to the population and would be eagerly snapped up in vast quantities. The population would save these coins and use paper money for transactions - Gresham's Law; individuals would dispose of their silver money only in situations of great need.

BM: I must not be reading this correctly, because it seems absolutely backwards to me. If I have a coin with one ounce of silver content, and on it is stamped “$60”, while an ounce of silver trades at $36, WHY would I NOT trade the coin in for 1 2/3 ounces of silver?

Additionally, the definition of Gresham’s Law is incomplete (and therefore applied incorrectly), as it often is when used by people who write on this subject. The law, more accurately stated:

“Gresham's law is an economic principle "which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."”

(from Wikipedia)

Gresham’s Law will result in exactly the opposite of what HSP suggests. The overvalued $60 coin will be eagerly driven into circulation, driving out other forms of money that are artificially undervalued by government decree. The undervalued money will be hoarded or driven underground.

HSP: How can we return to such a sound and realistic economy, where precious metals become once again money itself, because people think in terms of quantities of precious metal, either silver or gold?

First, we do not believe any change can be effected by a decree of any sort. The change must come in a roundabout way, insensibly. The problem of an overnight change, from the whole world's way of economic calculation by simple numbers, to calculation by quantity of precious metal is simply overwhelming.

BM: HSP states “First, we do not believe any change can be effected by a decree of any sort.” Then he goes on to make a decree. In fact, he makes a very bold statement: “There is only one way to achieve this.”

Really?

Please, just leave it to the markets. All that is necessary is to remove legal tender laws, remove tax consequences based solely on the type of money used in a transaction, and do not classify currency gains and losses as taxable events. The market is quite capable to figure this out in a manner and time far more efficiently than anyone person can imagine or decree.

All the Monetary Pixie Dust in One Place

2011-06-14T08:20:00.000-07:00

http://thedailybell.com/2494/Should-Public-Banks-Print-Money-Without-Holding-Reserves.html

Posted by bionic mosquito on 06/14/11 09:41 AM

"Anything that confuses people about money and banking is probably helpful to Anglosphere elites in their quest to keep their Money Power franchise intact - which in turn funds their quest for a new world order."

Quite true. We will see many of the confusing (and false) theories posted here today:

1) There is not enough gold to fund modern production

2) Money is created for the principal, but not for the interest

3) A gold standard won't work, as the elite have all of the gold

4) Politicians can control the money supply better than central bankers can

5) The money supply must grow with the size of the economy

6) The source of commercial credit is not saving but consumption

7) Gold and silver should be the only money, but the state must operate the mint

8) Why limit the growth of the economy to the growth in gold?

9) Access to credit needn't be contingent on someone else's agreement to give it up

10) The growth of the money supply doesn't matter, as long as prices are stable

It should be a fun day.

In the end, free-market competition in money and credit is the only proper answer, as DB often suggests. No legal tender laws, no government monopoly of money, no adverse tax consequences based solely on the type of money chosen for use.

The (relatively) free market has solved "money" in the past; the (relatively) free market has solved the problem of the production and distribution of far more complex goods than money today.

"Money" is a relatively simple problem for a free market to solve. Leave it to the market.

Mark Skousen Part II

2011-06-12T06:02:00.000-07:00

http://thedailybell.com/2489/Anthony-Wile-with-Mark-Skousen-on-the-Failing-Dollar-the-Growth-of-Liberty-and-the-Success-of-FreedomFest.html

DB: Are we headed toward a double dip recession for the world and America?

MS: Only if the US government blunders more than they have already.

BM: The US never left the first dip. The government doesn’t have to blunder anymore, continued recession / depression is baked in the pie. If the government stopped any additional spending, the current programs (both military and social) are unsustainable and enough to bring the economy and the dollar down.

MS: Both have risen so much in the past ten years that I'd be surprised if they keep going. There's got to be a major pullback, and if the US gets its act together, we could see a significant correction. We've already seen it in silver. But as long as the Fed keeps pumping cheap money into the monetary system, and keeps interest rates artificially low, commodities like gold and silver should do well. Oil too.

BM: Enough hedging and contradiction in this statement to make any outcome be the predicted outcome.

“There's got to be a major pullback, and if the US gets its act together, we could see a significant correction.”

The US getting its act together is a political impossibility, but Skousen is theoretically correct.

“We've already seen it in silver.”

Hard to call what happened in silver a major correction. Viewed from the perspective of even a year ago, silver is significantly higher.

MS: I'm very bullish on high-income dividend-paying stocks and funds.

BM: He can only be high on these if he believes that “the Fed keeps pumping cheap money into the monetary system, and keeps interest rates artificially low….” So he must also believe that gold and silver are going higher. But wait, he hedged that comment earlier.

MS: [The dollar is] in a bear market, that's for sure, but once the Fed reverses course and raises rates, and the government stops spending like a drunken sailor, I see the dollar recovering.

BM: Another greatly hedged statement. When does he see this reversal of course for the Fed and the government? It seems the only possibility of a reversal of course is if the Fed decide saving the dollar is more important than supporting Congress, Then, Congress will take over Fed activities (likely incorporate the Fed into the Treasury). A greenbackers dream, and the certainty of a hyper-inflationary nightmare.

Real Bills One More Time (part II)

2011-06-04T18:46:00.000-07:00

http://thedailybell.com/2429/After-the-Dollar-What-Comes-Next.html

Posted by bionic mosquito on 06/04/11 09:38 PM

(In further reply to Bischoff)

You continue to argue that inflation is not inflation because of some legal distinction or some accounting principle, as if some legislation or FASB decree can change the economic nature of the event.

There certainly is a legal and contractual difference between credit and receivables. There is also an accounting difference - each has its own place in the balance sheet. There is different treatment in the case of bankruptcy.

But economically there is no difference. Both capture the deferment of final payment for goods received today, albeit under different legal/contractual principles. All of your goings on about standard accounting principles and the difference of governing law do not change this economic fact.

Now here is where you say "I don't understand the difference" and I say "I don't know how to explain it better." You are one who is convinced that legislative action can change economic reality. You likely will never understand the difference.

Now, in any form (credit or receivable), the economic issue is the same. As Wimpy would say "I will gladly pay you on Tuesday for a hamburger today." It matters not to Wimpy how the seller books the transaction.

Why is it inflationary? Because it is fractional reserve. Why is it fractional reserve? You answered the question yourself. You say there is not enough gold (if you recall, gold = money, money = gold) to support production. (Not enough gold: another false concept, but not important to this discussion).

Not enough money (gold), but somehow through the magic of pixie dust man create some. Just like Bernanke and B of A.

Don't tell me (but I know you will anyway) that it is backed by gold. If the gold was there, then there would be enough gold to support production. But you say there isn't enough gold to support production. There either is enough gold or there isn't. You cannot argue both to be true at the same time.

Real Bills One More Time

2011-06-04T18:43:00.000-07:00

http://thedailybell.com/2429/After-the-Dollar-What-Comes-Next.html

Posted by bionic mosquito on 06/04/11 11:06 AM

(In reply to Bischoff)

"Money = Gold

"Gold = Money

"However, with the greater demand for products, the amount of gold used as currency was insufficient to also pay for each of the production steps in bringing an item to market. Unless there was a way to finance the production steps without the use of gold, the gold tied up to finance production would leave no gold with which to make purchases.

"The answer to the shortage of gold to finance both production and trade, lay in the development of a "redeemable" currency. Producers within a production chain for items in immediate demand by the consumer were financed by producers each other by drawing "Real Bills". These "Real Bills" were settled at the end of ninty days, after the end product had been sold.

snip-----------------

While recognizing the possible utility offered by real bills, I will suggest that I could not have written a better description of the fractional reserve and inflationary nature of this credit instrument. (Yes, it is credit).

Thank you, Ingo. As in our dialogue yesterday, I find in your words a better statement than any argument I might make on my own. I could save myself much trouble if you would only agree to take my part in our disagreements.

A Further View on Centralized Government

2011-06-03T13:58:00.000-07:00

http://thedailybell.com/2426/Why-Europe-Doesnt-Have-Leaders.html

Posted by bionic mosquito on 06/03/11 04:56 PM

While we are waiting for Ingo to gather his thoughts, I would like to expand further regarding my comments about Lincoln's War and the loss of the states' voice.

Declaration of Independence

When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.

Thomas Jefferson makes clear that the people have the right to disband government if the people believe that government is not serving its proper role. Was the South doing something beyond this such that Ingo feels compelled to applaud Lincoln's use of utter devastation? Jefferson makes clear that people are justified to disband the Union, yet Ingo argues that Lincoln was justified to maintain the Union under all circumstances (as he has previously stated). Does Ingo suggest that it is 'just' that a government can compel obedience by such force, even when the people decide that a change in government is in order? What would Jefferson say?

Ninth Amendment: The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.

Tenth Amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The Ninth and Tenth Amendments make clear that Federal powers are limited only to those enumerated, and those not enumerated are retained by the states or the people.

Kentucky Resolution (penned by Jefferson): That the several states composing the United States of America are not united on the principle of unlimited submission to their general government; but that, by compact, under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a general government for special purposes, delegated to that government certain definite powers, reserving, each state to itself, the residuary mass of right to their own self-government; and that whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force; that to this compact each state acceded as a state, and is an integral party, its co-States forming, as to itself, the other party; that this government, created by this compact, was not made the exclusive or final judge of the extent of the powers delegated to itself, since that would have made its discretion, and not the Constitution, the measure of its powers; but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress.

We see from Jefferson's words that the states did not assume a position of unlimited subservience to the federal government, and that acts of the federal government that go beyond the enumerated powers are null and void.

Virginia Resolution (penned by Madison): That the Constitution of the United States, having delegated to Congress a power to punish treason, counterfeiting the securities and current coin of the United States, piracies, and felonies committed on the high seas, and offenses against the law of nations, and no other crimes, whatsoever; and it being true as a general principle, and one of the amendments to the Constitution having also declared, that "the powers not delegated to the United States by the Constitution, not prohibited by it to the States, are reserved to the States respectively, or to the people," therefore the act of Congress, passed on the 14th day of July, 1798, and intitled "An Act in addition to the act intitled An Act for the punishment of certain crimes against the United States," as also the act passed by them on the -- day of June, 1798, intitled "An Act to punish frauds committed on the bank of the United States," (and all their other acts which assume to create, define, or punish crimes, other than those so enumerated in the Constitution,) are altogether void, and of no force.

We see from Madison's words that the federal government has authority to punish only a very limited set of crimes, also specifically citing the Tenth Amendment.

Finally, is it likely that those wise men who sat in Philadelphia during that hot summer of 1787 would have supported the document if they knew it came with the right of the Federal government to declare war on their home State if there was some disagreement, or even, in fact, if the State later decided to secede? Would the States have ratified the document if they knew that, to enforce the Union under all circumstances, the Federal government would consider as acceptable the type of devastation that was ultimately unleashed on the South - both the military and civilian devastation?

Of course, the answer to both questions is no. Yet Ingo clings to the notion that Lincoln's actions were justified. It is damnable, and it is irrational to conclude that somehow the 17th Amendment carried more weight in diminishing the voice of the States than Lincoln's war did.

Global Government, Part II

2011-06-01T11:35:00.000-07:00

Posted by bionic mosquito on 06/01/11 02:25 PM

Ingo, one question mark per question will suffice. I get it.

"How can you overcome central control when local culture, will, norms and self-reliance is checked and subject to central control now."

Just because it is so in some places doesn't make it so everyplace. Just because it is so at a specific times doesn't make it so at all times.

How can you overcome central control? Central control cannot last; this has been proven countless times. The Soviet Union is gone, now made up of a dozen separate states. Czechoslovakia is gone, broke in two. Yugoslavia is gone, with a half-dozen states standing in its place.

There will be more. As Cat Writer suggests, the EU will not stand as currently configured, it will break. Iraq will break in three. Afghanistan never was one, and will not be anytime soon despite having a central government in name only. Look at the Caucasus, a cauldron of factions.

It is not so difficult to envision that this will be true for the US as well. Yes, the central government might remain in form, but the power will be removed once the checks bounce (literally or figuratively, it won't matter). People will look to local solutions, as the national ones will fail, as they most definitely will.

A few hundred cannot contain a few million or a few billion by any means - force or otherwise - if the protection racket no longer is functioning.

I have mentioned before Jacques Barzun "From Dawn to Decadence" and Martin Van Creveld "The Rise and Decline of the State." Neither could be described as a radical; both come to a similar conclusion from different approaches. The centralized and all-powerful state is coming to an end, and we are living it.

"Do you advocate violent overthrow of the controlling elite...???"

Violence only in self defense.

"If not, then why hasn't central control been eliminated already...???"

It will likely never be eliminated, but it can be greatly diminished, and certainly decentralized. It has been decentralized where the promises failed. It will be decentralized where promises are yet to fail but will fail, as they must.

Too many non-productive supported by too few productive, with the ratio getting worse (BTW, IMHO this is why they opened the door to China and India - try to suck in a couple billion productive people to change the math. It isn't working, but that is a different subject). This cannot continue. The use of force, a new currency, the UN, the ECB, the IMF, the elite - none of them can change the very basic laws of economics.

When it fails, we will see Human Action. In some places, the new boss might be just like the old boss. In other places, less control will be the rule. In any case, decentralization will offer people more choices.

Global Government

2011-06-01T06:59:00.000-07:00

http://thedailybell.com/2426/Why-Europe-Doesnt-Have-Leaders.html

Posted by bionic mosquito on 06/01/11 09:52 AM

"One of the main tenets of Money Power is centralization. This is in fact its most important dominant social theme. The world needs global government. A New World Order. Western elites are not far from their goal actually."

DB is quite astute in pointing out that "Western elites are not far from their goal actually."

Global government is not in our future; it was implemented in our past. All the structures were put in place post WWII. The UN, IMF, and the World Bank are such structures. NATO is another. The US Dollar is another.

A legislative / executive body in the UN. A central bank in the IMF. A lending arm in the World Bank. NATO as the military arm. And the dollar as the world's currency.

The tumult of the first half of the 20th century was the revolution. With central banking and fiat money in force, two world wars to consolidate power and initiate the institutions necessary.

And post 1945? A continued consolidation via an "enemy" - first the Soviets, then the Muslims (consider the foresight of establishing Israel in 1948, a full forty years before it was needed. Consider the work needed to bring the world's support to the Jews, such that this action would be taken.). Wars fought via the US military (the anchor of NATO), authorized solely by the UN, with the congress sheepishly going along.

Consider instigating a financial crisis to bring the IMF and World Bank back to prominence, when (over the previous 10 - 20 years these institutions grew to be despised wherever they entered, even irrelevant).

World government is here. Much work was done before 1945 to make it so. Events since then can be understood simply as further consolidation of power - as DB often says, for control. Nothing more.

The region from Vietnam to the Caucasus was one of the last holdouts to this control. And consider where the physical battles have been fought, almost continuously, throughout this region.

It seems a few holdouts exist: Iran, Libya, and perhaps a few others. And what of powers such as China and Russia? It strikes me that they play the game, do the dance. Leaders there also have a lust for power, and take actions that keep their power in place. Many times these actions align with the desires of those behind global government, it seems.

World government is here, increasing its consolidation and control since 1945. It is a testament to the strength of the machine that the population of the west for the most part continues to fear that world government is a risk of the future, when in fact it has occurred in the past.

Fortunately, it will not work; centralization never can. There are too many vested interests for their own little kingdom of power; these won't go along so easily. Even more important: as force increasingly becomes the only tool left available to the elite, more people will rebel. As the promises of increased security in exchange for less liberty are broken, more people will rebel. When control relies on force instead of passive compliance, enough people will withdraw consent.

Unfortunately, it will be a painful transition.

More on Fractional Reserve Banking

2011-05-19T08:32:00.000-07:00

http://thedailybell.com/2326/A-Mises-Media-Classic-Money-Banking-and-the-Federal-Reserve.html

Posted by bionic mosquito on 05/18/11 02:42 PM

I find this video worthwhile for those not yet exposed to the systematic depredations of the monetary system. In other words, a good introductory video.

The fixation of the Mises Institute (or at least many people associated with it) on the "fraud" of fractional reserve banking is like a lead weight around the neck of this very fine institution. Read the contract. The money is not yours once you deposit it. Understand bankruptcy law as relates banking - you do not have first claim on your deposits, you get to stand in line with the other creditors, many of whom have claims senior to yours.

FRB certainly can be viewed as inflationary to the money supply; FRB certainly adds risk to the enterprise and those doing business with it. But it isn't fraud. Therefore I find no reason by which to "stop" it in a free-market-based system.

Posted by bionic mosquito on 05/19/11 09:25 AM

In reply to: Posted by John Danforth on 05/19/11 08:44 AM

"This is the reality, but this is not how it is sold. It is sold to people as if the bank is a storehouse for their savings and a way to turn their paycheck into usable currency. Not one in ten knows what the real relationship between themselves and their bank really is."

Not to be too blunt, but ignorance of the contract and the law does not allow us to enjoy a contract of our wishes.

Why on earth do depositors need FDIC insurance if they, in fact, have first claim on their deposits? When the FDIC decides to take down an insolvent bank, the good assets go to another institution, the "insurance" pays off the depositors. Why don't the good assets just get sold to pay off the depositors? Why, in fact, is the money not there in the first place? Where did it go if it is mine? How can I get paid interest unless the bank has lent the money to someone on my behalf? Why don't I have to pay a fee for storage for my assets, if in fact the bank is storing them for my use on demand?

"Again, the local bank lends funds that are not someone's savings nor their own: in payment for doing a few hours paperwork they hold title to your real estate, and if you miss a few payments, they end up with the physical asset. What has happened? What has happened was the consummation of a fraud. The fake money itself is fraudulent. The way it is legitimized is fraudulent. The laws that make it legal tender are evil. Perhaps in free banking the practice could be decriminalized, but only if the fraud element is removed, so people know exactly what they are getting into and have the choice to opt out."

There are many practices around the system of banking that a) only occur in an extreme magnitude due to government dictate and protection, and b) may also be fraudulent. But fractional reserve banking, in and of itself, is not one of these.

FRB, in a free market system, is a perfectly viable option for banking and money / credit. If a bank gets carried away with the practice, it will fail; its notes would trade at a great discount. This discipline of failure will be the best check and balance on the system; additionally, strip away the government created idea of limited personal liability and the system will very well discipline itself.

Even today, I would have no complaint about FRB absent the government backing of the entire cartel via the Fed and FDIC (to name two of many enabling agencies). The crime is in the government protection, not in the practice itself.

Of course, I would continue to state that FRB is inflationary to the money supply, but the impact will be only to members of society that utilize or transact in the specific currency being overly expanded. Here again, the crime today is the legal tender laws, giving us little choice, at least little choice absent large risks and consequences.

Such is my view of Real Bills; it is also fractional reserve banking (watch Ingo come out of his chair when he reads that, telling me some law passed by some legislature can defy economic reality). My only point and criticism with real bills is that it is an inflationary expansion of credit (well that and the false idea that there is not enough gold for a modern economy to function. Well probably a couple of other fallacious notions, but that is beside the point). That people choose to use it is entirely up to them in a free market. I even might find use for real bills, if we ever see free banking again, and if free banking results in market participants creating credit in this way (here again, watch Ingo jump).

Same for FRB: in a free market, there will certainly be fractional reserve banks. Mises himself seems to have accepted this. He also accepted the idea that the market would keep the excesses in check.

Too Late to Tinker Around the Edges??

2011-04-23T07:15:00.000-07:00

http://thedailybell.com/2135/Anthony-Wile-IMF-Austerity-Is-Headed-to-America-Watch-Out.html

I cannot help but notice a connection to today’s editorial by Mr. Wile and the editorial a few days ago by Mr. Hultberg and his new political party. Without rehashing all of the discussion from the aforementioned editorial, it would seem Mr. Hultberg’s “practical” solutions fall directly in line with the promotion of austerity, and that the solution lies – not in a complete rethinking of the relationship of government and society – but in a better management of government, with ALL of the control systems remaining in place.

As Mr. Wile said quite well, “Rather than question the fundamental alignment between the public and private sector – the basics of regulatory democracy – the IMF treats a country like a business and prescribes cost-cutting, privatization and other methodologies that address the symptoms instead of the cause.”

I will offer a few quotes from today’s editorial:

FT: This must involve cutting spending, reducing entitlements and raising taxes.

Barr: While the solution to that problem surely lies in more responsible policy – lower spending, a less ridiculous tax code….

Wile: But the real message in Barr's article, like the FT's, has to do with IMF-style remedies in my view. The phrase "less ridiculous tax code" seems to bear that out.

Wile: The conversation, as we can see in the above articles, is constricted. The problem is always defined as too much government spending. The solution is to demand more revenue from the citizens' affected and to slash the public services that many have grown to depend on.

Wile: IMF provisions featuring privatization, tax hikes and public sector "austerity" are designed in my view to provoke the very public anger that Western elites are counting on to fuel a conversation about yet MORE centralization and MORE governmental control – of a "transparent" and "disciplined" type.

Wile: The conversation is constantly to be focused on "better" government, not less of it.

And what will be the likely result of such “practical” solutions as offered by Mr. Hultberg and others like the IMF?

Wile: The result is a controlled social implosion that the powers-that-be can capitalize upon to introduce a new system, presumably a more globalized one, complete, perhaps, with a global central bank administering a new currency.

Finally to the point that “practical” solutions are no longer sufficient, and in fact only a distraction from the true problems:

Wile: One doesn't merely need "less" of what is currently offered. What is needed is a discussion featuring the fundamental freedoms that gave Western-style democracies their strength to begin with. The US 's vibrant economy in particular was built without a graduated income tax and without a central bank. There were no centralized regulatory authorities and no over-arching military-industrial complex.

I would only modify one portion of the statement. The US’s vibrant economy in particular was built without an income tax of ANY kind. The current income tax and the current central bank both were born at the same time, the dreadful year of 1913.

Now, I will say, I wrote all of the above in real time: capturing my thoughts as I read the editorial, and before reading the conclusion. Imagine my surprise, when at the end of today’s editorial, I read Mr. Wile’s conclusion, which is exactly the opposite of everything I gathered (and commented above) while reading the editorial:

Wile: While an even more radical downsizing might be preferred, Hultberg's proscriptions are at least a start and go far beyond the IMF-style conversation now being prepared for the US.

Mr. Hultberg supports a flat income tax, when the vibrant economy of the US was built with NO income tax. Mr. Hultberg supports a Federal Reserve, with a mandated policy to inflate 4% per year, when the vibrant economy of the US was built with no such mechanism of evil. Mr. Hultberg offers a dialogue exactly within the framework of those preaching austerity: fiddle around the edges of a failed system, yet not questioning the system itself.

The conclusion of Mr. Wile’s comments today seems counter to all of the analysis in the editorial.

Nelson Hultberg and Another New Third Party

2011-04-20T12:05:00.000-07:00

http://thedailybell.com/2114/Nelson-Hultberg-Political-Pygmies-and-Mad-Hatters.html

Posted by Bionic Mosquito on 4/20/2011 10:51:04 AM

"What has been taking place in the American political arena for the past six decades is one of the most blatant spectacles of self-delusion in American history."

Very well said.

"Yet the nefarious destruction descending upon our country had its beginning in 1913. That was the year that brought us the Federal Reserve and the income tax, which brought us the false boom times of the 1920s, which brought us the necessity to extinguish the inflationary fires with the Great Deflation of the 1930s, which brought us FDR's welfare-state."

A far better conclusion than is propagated by others on these pages. Personally, I think the big knee-bend on the chart occurred in 1865, when the last real possibility of check-and-balance on the federal leviathan was utterly destructed in Lincoln's effort to preserve the union under all circumstances. What a criminal objective, and what a horrible outcome for us all, and more so for the 600,000 who died for such an objective.

However, all of this was made possible beginning in Philadelphia in 1787, if one is looking for the roots.

From the video, the party platform:

1) A 10% flat tax.
2) The Fed to inflate at 4% per year, with someday decades from now a return to a gold standard.

Sorry, Nelson you lost my vote....

Please, spend your time educating the American people on the true nature of the problems, and the more appropriate solutions. There will be no solution via a third party; there will be no solution via politics as we know it today. But people will look for solutions when these current promises break. Your efforts in properly educating them will make for a better outcome when that day arrives.

Posted by Bionic Mosquito on 4/20/2011 2:49:31 PM

@Nelson Hultberg

It is always a treat when the author of the editorial contributes to the further dialogue. Thank you for this.

There are two main evils that, if continued, will ensure that incrementalism in the direction you desire will never work. One is the public funding of education; the other is the Federal Reserve System: the demise of either one will likely secure the demise of the other. You ignore the one, and support the latter. That you ridicule libertarians for pointing this out suggests you understand little about levers of control over the population.

If you do not destroy these two pillars, it matters little what else you campaign on. Maintain these two pillars, and nothing much will change in America. That you suggest to people that there will be change absent dealing with these two subjects properly reveals a significant shortcoming on your part regarding understanding politics and money power.

I advocate for education. To the extent you or anyone provides proper education, even if through politics, you have my good wishes. The important issues will not be "won" via a vote of an ignorant population, but only when the population is properly educated.

You offer a platform no different than things I have heard from varying politicians and economists over my lifetime. Flat tax has been discussed forever; yet the tax code only grows. The Chicago School always taught that a Federal reserve could be controlled; yet how will such a powerful entity be controlled the next time the end of the world is declared by your Treasury Secretary?

"But be fully aware that you are doing your country and the cause of freedom no good."

Please save your lectures. Over the last few years, a very radical libertarian has become a most recognizable political face to Americans. For the last two years, he was probably the second most recognized congressman, after Pelosi. Today, I would guess more people know of him than Boehner. He wrote a book "Abolish the Fed." Yet with this "radical" background, millions pay attention to his every word. Most of these same millions were sound asleep even three years ago.

Now, do I think Ron Paul has been a success in passing legislation? Obviously, no. But no "victor" of political office has done more to change the dialogue in the right direction in this country in the last 50 years than Ron Paul has. The main objective should be to expand this dialogue, to bring more people in to understand it.

Instead of piling abuse on the working poor, as you did in your editorial, and then doubled-down in your reply to WorkingClass, teach them about the costs to them of the current system. Teach them that the reason they cannot get ahead is because of the tax system and the fiat dollar.

Make the Federal Reserve their enemy; it won't be difficult to do. When the average everyday Joe has the scales lifted from his eyes (and he will, as the governmental promises are broken), he will be quite angry. And you suggest you will pacify him by advocating that you know how to manage the same beasts that caused his destruction in the first place?

They might be working class poor, but they aren't stupid; they will not be so easily fooled. And you would have done your country and the cause of freedom no good.

Posted by Bionic Mosquito on 4/20/2011 4:23:53 PM

@Nelson Hultberg

I thank and applaud you for remaining engaged in the dialogue.

"This could be done tomorrow simply by passing a law mandating that the Fed can expand the money supply at no more than 4% annually, i.e., at the same rate that goods and services grow. Voila! No more inflation. Zero percent every year."

The law won't pass. Or it will pass with one thousand loopholes. Or it will be violated the first time someone screams that the world will end. History of politics proves this is so. What do you know to counter this unassailable fact?

Inflation will not be zero. The distortions may or may not be reflected in the prices. First recipients will still get the jump on the poor saps.

"What's more, this could be explained and sold to American voters very easily."

By the time you get done explaining any of this to them in a manner that results in true understanding, they will wonder why you are advocating keeping any part of the Fed in the first place.

"Getting rid of the Fed is going to take 30-40 years."

Do you really believe your 4% law will survive politics for 40 years? In any case, I think the Fed will die of its own accord much sooner. Absent proper education in the people, those in power will stick it to them anyway with whatever comes next.

"In addition our candidate will sound like "that crazy ol' Harry Browne" who wanted to get rid of the welfare state."

Actually, this is how you came across to WorkingClass and Bluebird, and I will say these are two of the more rational, well spoken individuals of just the ilk you will need to convince. All you have done here is scare them, or at least get them quite upset with you. Scared or upset, either way they won't make good supporters of your cause.

"And even Ron Paul got only 7% with that approach....But no, radical libertarians prefer obscurity and 1% of the vote."

Now it can't be both 1% and 7%, can it?

From 1% to 7% in one election cycle, and before the obviousness of both the catastrophe and cronyism was known to a large portion of society. What might be possible with the continuation of this economic mess? And it is sure to continue and we are sure to see worse.

You recognize this fact about Ron Paul, and yet you don't see the big picture. When I heard he was running (again) three years ago, I shrugged my shoulders with a "so what." Then I saw the first money bomb. Stunning, especially for an oldster like me who recalls fondly pulling the lever for Ron 20 years earlier. He reached such levels of success before the full extent of the catastrophe was even hinted at.

Yet, you advocate continuing to give power to the same people who brought on this destruction. The people will look at you like you just came from Mars when you peddle this witch's brew ("I will manage these monsters better") in the middle of the crisis.

You believe incrementalism in the "right" direction can be had, with all of the same tools of manipulation in place. I will say again, you understand nothing of politics and money power when such levers and tools are available.

"Geeesh! What a brilliant strategy to save America."

Yes, indeed...If America is to be saved with a central bank, fiat money, the obligation of taxpayers to self-report every financial detail of their lives, public education (which you do not mention) all remaining in place, then you have saved nothing. All the same levers of control and centralization will remain. Meet the new boss, same as the old boss.

The Myth of Japan's Lost Decades

2011-04-16T09:29:00.001-07:00

This is a myth that keeps on giving. It seems helpful in the mainstream to maintain this myth. Please see the attached for a nice exposition, as well as links to further charts and analysis on the subject:

http://mises.org/daily/5170/The-Myth-of-Japans-Lost-Decades

A couple of takeaways:

1) The myth arises from a view of Japan's flat GDP.

2) GDP is a poor statistic for measuring growth in an economy. For example, it relies heavily on the use of a deflator. There is not (likely) a more manipulated statistic (and impossible to measure in any case) in economics than that measuring price inflation.

Japan has not inflated its currency. Japan has not experienced decades of deflation. While the banks have been propped up (with the expected negative impacts), Japan has not otherwise been "lost." The linked article captures this quite well. I certainly cannot further elaborate.

More (sur) real bills

2011-04-13T22:42:00.000-07:00

http://thedailybell.com/2060/Shrinking-Greatness-of-Congressional-Budget-Cuts.html

Posted by Bionic Mosquito on 4/13/2011 5:39:57 PM

@Ingo Bischoff

Apparently you are referring to a dialogue from some other thread, as I see nothing of the history here. Could you reference this please?

Now, on to this comment:

"...referring to Real Bills as credit instruments is either willfully mistating a fact or it is ignorance of the fact."

The supplier of raw material, who cannot otherwise sell his goods because of the lack/shortage of gold (ability to pay) of the next level producer, sells the raw material based upon a real bill. This is credit; you may call it whatever you want, but you will continue to be wrong.

The baker says to the miller: "I have no money, but I want your goods. Please give them to me. You will get paid later." This is credit. And as Fekete says that the source of commercial credit is not savings, but production, he is an inflationist and an advocate of funny money.

"Dr. Fekete's point is that Fed banks have to present actual FRNs in the form of Treasury paper to the Fed Agent to receive "credit"."

Check the Fed's balance sheet. There is every kind of garbage on it, almost to the exclusion of Treasury paper. If the Fed wanted to buy my 1964 VW Beetle, they could do it. Prove me wrong. Your assertion is stunning given the reality.

"The law does not allow the Federal Reserve banks to purchase Treasury paper directly from the U.S. Treasury because that would make money creation through the Federal Reserve banks a charade, reserve requirements a farce, and the dollar a sham."

While technically the Fed buys in the secondary market, when the primary market KNOWS the Fed will buy $600 billion of paper, and the Fed announces it as such, your distinction is meaningless in economic terms. I assure you, the banks understand the game.

"These comments by Dr. Fekete can best be understood by reading the statement made by George R. James, member of the Federal Reserve Board before the U.S. Senate hearing on the Banking Act chaired by Senator Glass in 1935."

I appreciate your grasp of the history of these institutions. However, your continued reliance on statements and statutes from 80 years ago is baffling. We see what the Fed is. It seemed obvious to many in 1913 what the Fed would become. That Fekete's statements can be understood by understanding a world that ceased to exist decades ago (if it ever existed at all) makes the statements rather unimportant in understanding the truth of the system today, setting aside the numerous economic fallacies contained in his statements.

Posted by Bionic Mosquito on 4/13/2011 9:22:05 PM

@Ingo Bischoff

My neighbor (call him Joe) owns a donkey. He insists it is a thoroughbred. Now, in our neighborhood, their are many farms that raise thoroughbreds, so we know one when we see one. Joe's donkey is no thoroughbred.

But Joe's brother-in-law (Frank) sits on the town council. Frank got tired listening to Joe complain at every family gathering about his so-called thoroughbred being called a donkey. So Frank had the town council pass a law. Joe's donkey was now a thoroughbred, by law. Except everyone knew it was a donkey.

"What in fact happens is that the miller says to the baker: "I am offering you my flower so you can produce bread, IF YOU PAY ME WITHIN 90 DAYS [emphasis added]. I know you will sell the bread since people must eat. I have no doubt, nor will any subsequent holder of this Real Bill, that you will pay on maturity. Please sign here.""

Ingo, once again, using your own words as my evidence, it is clear that real bills are credit. To pay in 90 days, instead of on delivery, is credit. That someone passed some law that defines or governs bills of exchange does not change the economic reality; this is credit.

You are trying to peddle your donkey as a thoroughbred. Just because Frank passed a law doesn't change the nature of the donkey.

"Dr. Fekete understands this, and I understand this."

That you and Fekete understand this says more about cognitive dissonance than it does about your (or his) understanding of economics. Your explanations give away the reality that Real Bills are another promise of pixie dust: wealth from nothing, the same voodoo sold by Ben Bernanke.

Posted by Bionic Mosquito on 4/14/2011 8:26:25 AM

@Ingo Bischoff

I make no assumption about who is wealthier, the baker or the miller. Wealthy individuals, even cash-rich individuals, utilize credit in their business dealings. That they may not require credit makes it no less credit. Why do you introduce a strawman?

You and Fekete are peddling a donkey but calling it a thoroughbred. In your case, the reason seems to be because bills of exchange are governed by "law X" while commercial credit is governed by "law Y." This may offer a legal distinction, but there is no economic or monetary distinction.

As to there being a difference of interest charged as opposed to taking a discount on a note, economically there is none.

Exchanging goods for final payment (final payment requiring money, not a money substitute) to be made at some future date is credit. Interest charged or taking a discount is economically identical. It requires lawyers to come up with different methods and means to complicate the matter. To the businessman, the net result in the cash flows are identical.

That some might prefer taking a discount on a bill of exchange as opposed to utilizing interest in a conventional note does not matter. This is what makes a market.

Posted by Bionic Mosquito on 4/14/2011 2:39:10 PM

@Dave Jr

"Monetary inflation is moot."

This is incorrect. It always results in misallocation of resources, and therefor a) overall wealth destruction and b) a transfer of wealth toward the first recipients of the inflated money supply. It is true with real bills, as resources are taken from consumers and savers in favor of producers.

"Price inflation is what matters."

This, of course, is also the defense claimed by central bankers. "Watch price inflation [a thing impossible to measure] and ignore the theft going on via debasement of the money supply." As to real bills and price inflation, there is no doubt that with real bills prices are higher than they would have been absent real bills, as inherently demand would be lower.

Your words are the words of those supportive of central banking and fiat money. To the extent you speak knowledgeably regarding real bills, you demonstrate that the philosophy underlying central banking is the same philosophy underlying real bills.

Government and Retirement Plans

2011-04-10T17:02:00.000-07:00

http://thedailybell.com/2019/Tibor-Machan-The-Story-of-Entitlement-Addiction.html

Posted by Bionic Mosquito on 4/10/2011 7:56:58 PM

@Jeannie Queenie

"I am not a NON productive citizen as a retiree.... I DID MY JOB AND A DAMN GOOD ONE"

When I use the term "non productive" I use it in a quite value-neutral manner. A productive person produces goods and services desired in a free market. A non productive person does not.

So non productive can include individuals for whom being productive is not an option, due to some physical or mental shortcoming. It can include someone who is no longer active in a productive capacity, after a lifetime of being tremendously productive. I make no negative statement regarding such people.

On the other end of the spectrum, non productive can include professions that would not exist, or to nowhere near the extent they currently exist, absent the coercion of the state: military personnel, defense contractors, university professors, lawyers, most government positions, etc., are some examples.

Or professions that would exist without the state, but without the excessive compensation made available only due to state involvement: the most egregious example is what passes today for bankers. But you could include lobbyists as another example.

So, by my definition, retirees are, at least to a large extent, non productive. There is nothing wrong with this, as long as they saved over a lifetime (or are supported by family) and do not demand sustenance via coercion.

Non productive as I define it is value neutral. The number of people producing goods and services desired in a free market is shrinking, or not growing as fast, as the number of non productive people that are not producing such goods and services.

So no need to yell at me!

"Are you saying that most boomers are so bereft in brains that they will just lay down and play dead after putting monies into their 401Ks for 10, 20, 30 and even 45 years...."

They will volunteer the next time the stock market falls by 50% or more, and the government offers the chance to come in to the government endorsed investment option at your previous high-water mark.

Start with defined benefit pension plans. These are administered by boards with a fiduciary duty. A typical plan might have hundreds of millions to hundreds of billions in assets. With the next market correction, they will lose half the value. Now the government says: "give us the assets, and we will credit your beneficiaries with the high water mark as the coming in position." As a board member with fiduciary duty and potentially personal liability for taking the "wrong" decision, how would you respond? If they give the assets to the government, there is no way they will be held liable for the decision in a government court. But if they don't? How will they defend themselves in those same courts? They did not take advantage of making the beneficiaries whole? A no-brainer for these board members. They will hand the assets (and obligations) to the government

Now, as an individual with a 401K or an IRA, how would you respond? Three years from retirement, and your assets fell from $500K to $200K. Or, five years into retirement? The government will give you credit for $500K, the previous high water mark.

Most will convert voluntarily. It will buy a few years time for the state, once again delaying the required bust, and ensuring it will be even larger.

Jim Rogers at The Daily Bell

2011-04-03T07:26:00.000-07:00

http://tinyurl.com/3d45dq2

Or go to search The Daily Bell site, at: http://www.thedailybell.com/index.asp

JR: [On central planning in China] Centralized planning is rarely, if ever, good for the economy. But the kind of construction you are describing is at the provincial level – not the national level.

BM: The provinces are larger than most countries. This is “central” enough, and I am certain Jim Rogers understands this. Perhaps he is sending a message: don’t look at China as one; don’t look at all of the problems as country-wide, you must understand each province, each district, if you want to invest wisely in China.

JR: [On civil and social unrest] There is going to be more social unrest worldwide including the US. More governments will fall. More countries will fail.

BM: It is a dangerous balancing act that the elite play. Unrest may help them bring in desired change, but how to manage a few billion upset people? Talk about herding cats! This unrest can backfire just as easily as it can work to the elite’s benefit. Perhaps the size of the gamble suggests something about the desperate position the elite’s find themselves in.

JR: [On Europe and the Euro] I think we are getting closer and closer to the point where someone in Europe is going to have to take some losses, whether it's the banks or the countries….

BM: Either lose on the currency or lose on the bonds; this choice must be made. In the end they will take haircuts on the bonds. The currency is too big a tool for control for the elite. To lose it only to usher in something bigger, the SDR? Much easier to build on the foundation of large states as opposed to smaller states, especially after a failed experiment of a common currency. If that is the gamble, it only again demonstrates the level of desperation.

JR: [On the Tea Party in the US] We still haven't seen much action.

BM: Yes we have. They extended every draconian position of the Patriot Act, if my understanding is correct. If Americans believe they can change the system through politics (just play along with me for a moment, as there is no answer in politics as it stands today), vote them ALL out at the same time, and only vote in third parties. Repeat every two years. That will make it fun for a while.

JR: [On continuing American wars and empire] Why are we supporting the guy in Yemen and not the guy in Libya? I can see absolutely no intellectual, philosophical, or even political justification for what we are doing.

BM: I read that the US gave Saudi the OK to go into Bahrain in exchange for Arab League support on Libya. Such is political justification these days.

JR: I don't know there's more military tension between China and the US these days.

BM: Yes, the US believes the western Pacific (including Taiwan) is US territory, China believes otherwise.

JR: Politicians may be railing more and more about China, but that's a verbal encirclement of China, not a military one.

BM: But isn’t this how it always starts?

JR: [On the IMF replacing the dollar with the SDR as reserve currency] I can see if something dramatic happened tomorrow or if people are desperate, but I don't see SDRs working at all.

BM: Is this a hint, where Rogers knows more than he is willing to say? The elite are likely rather desperate. Although he is right, the SDR won’t work any better than any other fiat currency. Just more pain for us little people in the meantime.

JR: [On Bernanke purposely trying to ruin the dollar such that the IMF can usher in a new world currency] That's a conspiracy theory that assumes these people could work together. No, he actually believes in what he is doing and he believes he's going to save us all.

BM: That Bernanke is a true believer in his models and capabilities I have no doubt. This doesn’t negate the possibility that there is an attempt to purposely ruin a currency. Knowing what Bernanke believes about monetary policy, wouldn’t you choose him as the key central banker if you wanted to ruin a currency?

JR: But I would hope that everybody takes out some kind of insurance policy for their money

BM: This is all that gold is. Don’t plan on getting rich off of it, and pray that it returns in price to a few hundred dollars an ounce; a sign of return to some stable money. Like fire insurance on your house, you don’t desire that your house burns down such that you can feel like you got value for your insurance policy; and you don’t feel wealthier if your house is destroyed. Yet, each year, when it doesn’t burn down, you renew the policy anyway.

DB: The remonstrations show something specific about the man and his character. Jim Rogers is someone who will patiently sit through interview after interview (he says he's been giving too many of them) and express informed opinions on any one of a number of topics. This generosity can fool you into thinking you are speaking to an amiable, even low-key gent, and not one of the sharpest most successful investors alive today.

BM: This struck me throughout the interview. Then I thought about how he appears on the TV and YouTube interviews. He says the same words; yet they do not come out sounding so blunt when heard in that southern drawl. Conversely, on the TV interviews, the pleasant southern drawl and demeanor tend to hide the fact that his is a very sharp mind; something that came across quite strongly in this DB interview. Altogether, the same man saying the same words, yet two very different perceptions on my part depending on if it is live TV or the printed word. This DB interview added depth to my view of Jim Rogers.

Mises and Gresham's Law

2011-03-30T17:14:00.000-07:00

Again, quoted passages are from Human Action Chapter 17 section 12.

Gresham's Law is often stated: bad money drives out good. This is incomplete, and an incomplete statement of Gresham's Law. It is more accurately stated: Bad money drives out good if their exchange rate is set by law.

If different "money" is free to trade, without any hindrance from legal tender laws, tax preferences, etc., bad money will not drive out good, nor necessarily will good money drive out bad. Different "monies" will find their value in the market, and will trade. Period.

However, if one money is protected by legal tender, and the valuation is fixed by government, then yes, the bad money will drive out the good. All will get rid of the over-valued (by government decree) money, as it MUST be accepted by the counter-party, and accepted at a value higher than the market would determine.

Mises addresses this idea as follows:

"If, however, the things concerned are not money-substitutes and are traded at a discount below their face value, the assignment of legal tender quality is tantamount to an authoritarian price ceiling, the fixing of a maximum price for gold and foreign exchange and of a minimum price for the things which are no longer money-substitutes but either credit money or fiat money. Then the effects appear which Gresham's Law describes."

If, by decree, the "thing" that is no longer a money substitute must be accepted not at the discounted value of the market, but at the inflated value of the decree. This money will always be spent first, and it will drive the truly "good" money out of circulation. Why would someone spend a 100 cent dollar when a 90 cent dollar must be accepted by the counter-party at 100 cents? Bad money will drive out good money.

Mises then addresses what would happen in a free banking environment, where competing currencies trade freely without legal tender. In fact, he is for the more the merrier, as in the following:

"However, freedom in the issuance of banknotes would have narrowed down the use of banknotes considerably if it had not entirely suppressed it. It was this idea which Cernuschi advanced in the hearings of the French Banking Inquiry on October 24, 1865: "I believe that what is called freedom of banking would result in a total suppression of banknotes in France. I want to give everybody the right to issue banknotes so that nobody should take any banknotes any longer."

He proposes that the good money will drive out the bad. In a freely competitive environment, where multiple banknotes would be issued, he sees the entire concept of banknotes disappearing, in favor, presumably, of good coin.

I think this will be true for the absolutely worst banknotes. However, it strikes me that most will continue to trade, but not at face value. Perhaps this is what Mises is getting at with the following:

"But if any doubts exist concerning their prime character, people will hurry to get rid of them as soon as possible. They will keep in their cash holdings money and such money-substitutes as they consider perfectly safe and will dispose of the suspect banknotes."

For safety, people will keep the most secure notes, the notes issued by banks with the best reputation. They will preferably spend the suspect notes, or more likely take them to the issuing bank for 100 per cent redemption.

Such will be the check on any bank, and this I return full circle to Mises and free-banking. He sees the market perfectly capable of "policing" if you will, the various banks participating in the market. Once the reputation of a bank is in question, notes will be brought to the bank to be redeemed. Unless the bank is acting properly in its reserves, it will soon find itself depleted. The end comes quickly when the reputation is in question.

Mises and Real Bills

2011-03-29T21:35:00.000-07:00

As might be obvious from several of my posts here, I enjoy a robust discussion about Real Bills / Bills of Exchange. Mises addresses this topic in this section of Human Action (Chapter 17, section 12).

"The notion of "normal” credit expansion is absurd. Issuance of additional fiduciary media, no matter what its quantity may be, always sets in motion those changes in the price structure the description of which is the task of the theory of the trade cycle."

Mises makes the statement that there is no such thing as a "normal" credit expansion. This statement strikes me to mean that there is no "rule" that can be applied to money supply growth; no standard increase that can be viewed as normal. No Taylor rule. No Milton Friedman acceptable range of 3% to 5% per year.

Inherently, this must be so. There is no formula that can better determine the necessary supply of money and credit better than the market can. The market determines appropriate supply and demand for countless products, most of which are far more complex than the "product" of money and credit. Why is it that somehow credit is too difficult to be left to market forces, when it is nothing more complex than one actor with excess savings making his savings available to another who requires credit.

"The Banking School taught that an over issuance of banknotes is impossible if the bank limits its business to the granting of short-term loans. When the loan is paid back at maturity, the banknotes return to the bank and thus disappear from the market."

From what I understand from proponents of Real Bills, the over issuance is not impossible; banks can over issue notes, but will soon be disciplined by the market when it becomes clear that this is the practice, or when the notes cannot be redeemed.

"However, this happens only if the bank restricts the amount of credits granted. (But even then it would not undo the effects of its previous credit expansion. It would merely add to it the effects of a later credit contraction.)"

Here Mises recognizes that the bank must remain disciplined in its issuance of notes. The more important point is in the second sentence. Proponents of Real Bills do not see inflation because they state the notes are redeemed within a short period; in the case of Real Bills, 90 days.

Mises makes the point that expansion is expansion. The negative ramifications of expansion may be limited, due to the short time window, but it is still expansion, with all of the potential distortions this will cause.

"The regular course of affairs is that the bank replaces the bills expired and paid back by discounting new bills of exchange. Then to the amount of banknotes withdrawn from the market by the repayment of the earlier loan there corresponds an amount of newly issued banknotes."

But it is worse. The individual notes may disappear in 90 days, but the expansion does not end. Redeemed notes are replaced with new notes; this, the expansion is permanent.

In these few sentences, Mises lays bare what should be obvious to all about Real Bills. They are expansionary to the money supply and credit. The expansion, even if of a limited duration, will result in all the negative consequences of any credit expansion. Further, the expansion is not limited, and redeemed bills are constantly replaced by newly issued notes.

I go into much greater detail about these criticisms in many of my previous posts at this site. I feel it would be redundant to go further in this post reviewing the work of Mises. For those interested, look under labels for Fekete or real bills.

I am pleased that Mises agrees with me!

Dubious Banknotes

2011-03-28T21:10:00.000-07:00

From Human Action, Chapter 17 section 12

"A lot of nonsense has been written about a perverse predilection of the public for banknotes issued by dubious banks. The truth is that, except for small groups of businessmen who were able to distinguish between good and bad banks, banknotes were always looked upon with distrust. It was the special charters which the governments granted to privileged banks that slowly made these suspicions disappear. The often advanced argument that small banknotes come into the hands of poor and ignorant people who cannot distinguish between good and bad notes cannot be taken seriously. The poorer the recipient of a banknote is and the less familiar he is with bank affairs, the more quickly will he spend the note and the more quickly will it return, by way of retail and wholesale trade, to the issuing bank or to people conversant with banking conditions."

"If the governments had never interfered, the use of banknotes and of deposit currency would be limited to those strata of the population who know very well how to distinguish between solvent and insolvent banks."

I am finding with Mises that there is little for me to add when it comes to his writing. This is true with these passages as well. In these passages he makes a valuable point: by their very nature banknotes will only be used to any great extent by reasonably sophisticated businessmen, those qualified to make a distinction between good and bad notes. For many of the rest, they will go to redeem notes quickly, not being always sure of the quality of the institution behind the note.

Faith was increased only as the government became involved, making users of notes less concerned about the true backing. Of course, government did it for the good of the poor and less capable clients...but these were the same people who avoided keeping notes for any length of time anyway.

We see this same complacency in spades today, for example with FDIC insurance: how many people think at all about the solvency of their bank? Absent such "insurance", how long would troubled banks stay in business? How much more sophisticated would depositors be about the home for their funds?

Here again, Mises does not call for a banishment of any practice (other than by implication the practice of government interference). Instead, he sees in the free market certain built-in mechanisms to minimize the likely abuses by less-than-scrupulous businessmen.

The Art of NOT Being Governed: Defense Benefits of Being a Non-State

2011-03-28T20:45:00.000-07:00

"Acephalous communities like the gumlao were subversive to British - or any other - administration; they provided no institutional levers or handles with which to enter the community, negotiate with it, or govern it....Egalitarian acephalous peoples on the fringes of states are hard to control.They are ungraspable. To the command "Take me to your leader" there is no straightforward answer. The conquest or co-option of such peoples is a piecemeal operation - one village at a time and, perhaps, one household at a time - and one that is inherently unstable."

It is often wondered how a society can defend itself against outside aggressors absent an all-powerful state providing such defense. I do not take the above quoted passage as the last word on this topic, however an interesting idea is presented. Without a leader, without central levers of command and control, it becomes rather difficult for anyone to take power. This is quite effective as it relates to an outside aggressor.

It may seem such a strategy can only work in small, isolated pockets. I don't know. However it seems it could be quite effective even in a large geographic region like the United States.

Imagine no central control or bureaucracy via which to exercise victory or subsequent control. What might this mean to a would be conqueror? The first hurdle would be (for many) several thousand miles of ocean on two sides. Inherently a logistical nightmare. Beyond this, what to do when you land? Is it feasible to conquer the continent one home at a time, over an area 3000 by 1200 (more or less) miles? Other than a few large cities, the entire continent is sparsely populated. No small feat.

Consider the hundreds of millions armed, each of whom must be overcome. Yet no central machine to do the heavy lifting of coordination and control. Each victory, one person at a time.

You might choose to make a threat: "We will nuke you." With whom will you negotiate terms? What if no one came to talk to you?

This was one of the strategies of the tribes, in Zomia and I would assume elsewhere. Combined with mobility and hidden underground crops, it served independent minded people quite well for countless centuries. It would seem there are lessons that could be applied today as well.

Poor Barry Bonds

2011-03-23T09:34:00.000-07:00

http://thedailybell.com/1917/Bonds-and-BALCO-Again.html

Posted by Bionic Mosquito on 3/23/2011 11:59:02 AM

The primary reason the government is after Bonds is for allegedly lying to the government. Just like Martha Stewart. The underlying "crime" of ingesting something is secondary; it is only the means to an end, the tool of control used to entrap and ensnare. This is one "crime" (lying) the government cannot abide, and an example is always made of any public figure believed to have done so.

Any so-called "fraud" perpetrated by Bonds on the baseball world has been dealt with in baseball. He will likely never get elected to the Hall of Fame; his name will always have the taint of steroids associated with it. There is no reason for the state to get involved in this, and certainly this is NOT why the state is involved, although some might proclaim it as the noble purpose.

However, there is the bigger question of "why" there is so much money in sports, especially in the US, where three major sports can support athletes making tens of millions per year. (And, by the way, two major college sports could do so as well, except the athletes are not allowed to be paid, an entirely different scam.)

It starts with anti-trust exemption. The government allows special exemption (exemption to a law that shouldn't exist anyway, but that is a different subject) to baseball and other sports, allowing owners to collude with each other and exclude others from participating in their markets.

Second is the public financing of stadiums and arenas. Almost all major sports venues are subsidized with tax dollars.

Third is the impossibly lucrative broadcast-rights fees paid by major networks to telecast the events, media being one of the more regulated industries in the US.

Fourth, the truly unique skills required by the athlete to achieve "making it" in this field. The talents of any professional athlete cannot be replaced by Joe the Plumber, and the talents of a Barry Bonds cannot be replaced by 98% of any of the other players in professional baseball.

Fifth, none of this money is possible without the luxury of the world's reserve currency.

Is it any wonder that athletes can be paid tens of millions per year in such a system? Take only one of the above items: the public funding of stadiums: imagine if your employer / business owner did not have to fund the land, buildings, and improvements of capital facilities and capital stock.

Now, add a second feature from my list above: to become employed by this employer / business owner you had to be in the top one-one hundredth of one percent of your field ' in other words, there is no real competition to you because of the uniqueness of your skills. Now throw in the unbelievable revenue from broadcast rights and the ability to be free from rules that other industries must follow, unlimited funny money, and what do you get? Fat salaries and fat profits for all.

Government enabled Barry Bonds. The entire structure is set up to allow for unfathomable oversize income, and the set up is by the government. The state must ensure an oversize incentive to get the best athletes to turn to athletics for a career.

But why? The overriding purpose of the state in professional is at least two-fold, and quite obvious:

1) it is the "circus" part of bread and circuses, and

2) to replace what was historically known as religion (with its binding set of morals, ethics, culture, family, etc.) with a new religion controlled by the state.

Any who have witnessed American sports, with military flyovers, crying fans, fantasy sports, etc., sees full well how effective the state has been in achieving its purpose.

We should not be surprised that any individual reacts to such incentives with any means available, especially when those means were NOT even proscribed by the employer (which they were not at the time of Bonds' alleged malfeasance).

The trial is a scam, the alleged crime is the one the state hates most, and the system itself is enabled by the state. I say: poor Barry Bonds. Even at his level, just one more pawn.

Germany and the EU

2011-03-23T09:32:00.000-07:00

http://thedailybell.com/1916/EU-Troubled-Titan.html

Posted by Bionic Mosquito on 3/23/2011 11:13:24 AM

DB: ...a provocative editorial claiming that the European Union still hasn't been able to come up with a financial or political formula to alleviate the stresses caused by the unfolding sovereign debt crisis of the EU's Southern PIGS.

BM: They haven't come up with one because there isn't one to be had. They cannot save both the bonds/banks and the currency. Choose one or the other.

DB: ...we are not averse to analyzing articles that provide "pushback" as regards these same themes. They can certainly illuminate the underlying dialogue and provide further insights. Rachman makes some good points about the EU's ongoing difficulties.

BM: Perhaps Rachman's role is to point out to the technocrats and the people where they are falling short, and just "get on with it."

DB: Rachman's verdict: "I am skeptical about the pledge that they will do 'whatever it takes' to save the euro. That may turn out to be the ultimate phantom giant."

BM: They can save the bonds/banks or save the Euro. They cannot do both. My guess is in the end they will save the currency, as it allows much more control. They can leave the bonds/banks to each separate country to deal with.

DB: Is Brussels willing to invade Germany?

BM: It is quite interesting; Germany went its separate way on the Libya vote. Go to sleep and rise again in about 30 years. Would you be terribly surprised to find Germany in an alliance with Russia and China (perhaps Australia as well)? Economically a wonderfully perfect fit for all parties. Militarily, also able to hold their own. Not so difficult to fathom, once the dollar loses it role of prominence.

Posted by Bionic Mosquito on 3/23/2011 12:18:29 PM

DB: If you buy off on the idea that the Anglosphere went to war twice with Germany because that was the culture that worried the City of London elites the most...

I think Germany did not just worry them the most, but the Germans (and Japanese) with the most productive middle-class, were the most valuable to co-opt under the control of the PE.

Neither the Germans nor Japanese would be easily subsumed if they remained as equal partners to the British, so they had to be forced to submit through violence.

Why did England turn its back on Japan after WWI? In the first war, they were allies, and rightly so (from an empire perspective). Japan watched over British interests in Asia. But perhaps as partners, Japan would not submit, so they needed to be turned into an enemy.

Why did Britain choose to fight against Germany instead of fighting against Russia? Stalin was the far bigger evil in the 1930s, having killed tens of millions of his own whereas Hitler maybe killed a couple of thousand of his own.

If Stalin was made the enemy (as Hitler appropriately and apparently felt Britain would do), the war would have gone MUCH easier for Britain. The Germans would have done all of the heavy lifting, with Britain only ensuring the sea lanes for trade.

But Britain chose to fight Hitler....

Japan and Germany, two of the most productive societies of the 20th century, could not be brought under the control of the PE by treaty or by compromise and diplomacy with Britain. They could only be brought under control by military domination. Thus Britain made two seemingly stupid decisions: 1) turning its back on Japan, and 2) fighting Germany instead of joining Germany.

With military victory, the elite received two of the most valuable middle-classes in the history of man to exploit, at the cost of shifting some power from London to Washington. An easy trade-off, as both governments were compromised.

Churchill, as the one man in the center of Britain's demise, is hailed as Britain's hero. He can only be called a hero if viewed from a level above the state (he was at the center of the destruction of Britain). He was a hero to someone or something higher than the British and the British people, because he did Britain no favors.

Who might that "someone" or "something" be? I will wait for an invitation to the staff meeting before I decide....

Why the Wars? part 2

2011-03-22T16:24:00.000-07:00

http://thedailybell.com/1913/US-Kill-Teams-Target-Afghan-Civilians-as-Trophies.html

Posted by Bionic Mosquito on 3/22/2011 12:05:21 PM

@JeffC

"Damn those who put our children in these places, for these reasons."

I agree with the sentiment of your post. I only use this one quote of yours to make a point: it is the parents of those children that will be most answerable for the children being put in these places.

The track record of falsities and lies behind war is so long and obvious to anyone even casually interested in discovering the truth. Even if one believes all the propaganda for the wars through 1945, how is it possible to accept the stories behind Korea, Vietnam, Lebanon, Kuwait, Iraq, or Afghanistan?

There is nothing of protecting the US behind any of these wars. No such interpretation is possible.

For thirty years or so, every child sent overseas to murder others they have never previously met (and who have never done a thing to harm an American) has gone voluntarily. No compulsion, no draft. They have done so knowing the track record of the war machine, and if they didn't know it...well, ignorance is no defense.

The burden is on the parents. They raise the children this way. They teach them that this is honorable. Do not be mean to Sally next door, but go 10,000 miles away and destroy the lives of countless people who never did you harm.

I have posted this here before, it is a good time to post it again. A scene from "The Americanization of Emily." James Garner gives a wonderful explanation of the concept I am struggling so hard to convey in this post:

http://www.youtube.com/watch?v=i00Jiiak0UE

Free Banking, Part Two

2011-03-08T13:44:00.000-08:00

Human Action, Chapter 17 Section 12

“Free banking is the only method available for the prevention of the dangers inherent in credit expansion. It would, it is true, not hinder a slow credit expansion, kept within very narrow limits, on the part of cautious banks which provide the public with all information required about their financial status. But under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular - one is tempted to say normal - feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions.”

What a powerful statement. In this paragraph, Mises makes clear that free banking is the best check on un-backed credit expansion, yet also in a free market, credit expansion is to be expected, and presumably tolerated within the context of a competitive market environment.

Both statements are worthy of further examination. Free banking – unregulated and fully competitive banking – is the best check on credit expansion. Most would see the opposite. Unregulated banks, it is often believed, would be most likely to exceed prudent levels of credit and leveraged. The greed and profit motives in the bankers must be checked by regulation and government oversight to ensure that prudence is maintained in the sector.

Mises says the opposite – that free banking would not go to the excess of credit expansion with the subsequent booms and busts that are visible in centralized, state-controlled banking.

A few minutes of reflection makes clear why this would be so. In the current system, we have seen first-hand the privatizing of profits and the socializing of loss. In such a system, there is no natural market discipline of potential insolvency that would help regulate the banks. the possibility of banks runs, historically employed when the reputation of the bank was in question, has been virtually eliminated with the advent of deposit insurance, again a creature of the state.

Excesses today, in the cartelized monopoly system, inherently pour disease to virtually every institution given that one policy fits all. However, imagine a system where all banks are subject to profit AND loss, where contractual terms have the same meanings as with other everyday businesses, where different banks are free to institute unique currencies, loan and credit policies, etc. in other words, imagine banking to be an industry like many others.

We have no examples of import where EVERY company of an industry was at risk of simultaneous insolvency. Instead we have examples of competition bringing out better quality and lower costs, tailoring services and products in order to capture specific market segments, we have trial and error of new products, on a small scale, thus giving natural opportunity for innovation without introducing systemic risk.

This is what is in store with free banking. The market – being all of the customers and competitors of each and every bank – will regulate each bank. If lending practices are overly lenient, depositors will reduce exposure to the subject institution.

The second statement is equally important. In it Mises suggests that it is possible and even expected that some banks will practice expanding credit. He is speaking here of fractional-reserve lending. He does not call for government regulation, he does not call for criminal prosecution, he does not suggest this “evil” must be avoided at all costs. He requires that all relevant information regarding the bank’s financial condition and commitments be public, such that customers have the opportunity to make informed decisions.

He is perfectly satisfied that, to the extent the practice must be regulated, the market will regulate the practice. If one institution gets carried away, the competitive market will limit the damage to the subject institution and to its customers. He calls for no further punishment or sanctions.

In other words, at least from my read of this section, Mises leaves room for credit expansion in a free market banking regime, as long as fraud resulting from false financial or other documentation is avoided.

“Today even the most bigoted étatists cannot deny that all the alleged evils of free banking count little when compared with the disastrous effects of the tremendous inflations which the privileged and government-controlled banks have brought about.”

Even today, after the most obvious failures of financial institutions throughout the world, it is rare to hear anyone make such a statement. Almost all commentators view more or different regulation as the answer.

What a tribute to the genius and foresight of Mises, that he made these statements a century ago, while much of the world was still on some version of a gold standard, before the central banking in the United States, before the inflation of WWI, the Great Depression, the various banking calamities including the S&L crisis in the US, and most obviously the final deathblow of the crash of 2007 / 2008.

Truly a genius.

Central Banks, the ECB, and Bernanke

2011-03-08T07:42:00.001-08:00

http://thedailybell.com/1837/ECB-Hikes-Rates-Crushes-Spain.html

AEP: The ECB's governors might usefully study Systematic Monetary Policy and the Effects of Oil Price Shocks, a seminal work in 1997 by a Professor Ben Bernanke of Princeton. The reason why such shocks often lead to slumps is because policymakers make a hash of it. "The majority of the impact of an oil price shock on the real economy is attributable to the central bank's response, not the inflationary pressures engendered by the shock," wrote Bernanke.

One more reason to fear the US Dollar, even more than the Euro perhaps. For all those who fear / feared deflation, rest at ease. Bernanke was never going to let you down, and statements such as this one attributed to him offer near certainty as to Bernanke's future actions, at least until official measures of price inflation are overwhelmingly significant (high single-digits, low double-digits maybe?).

Monetary inflation is ignored. Price inflation is usually measured via some form of CPI, and this is very likely understated and certainly manipulated. As long as the understated CPI remains benign, Bernanke will keep his foot on the accelerator. And when inflation rears its ugly head via higher commodity prices, Bernanke will ignore these signals as "shocks" as opposed to plateaus. He said so, all the way back in 1997.

However, even Bernanke will have some concern about his legacy, and he will not want to go down as the first (I believe) central banker of a modern Western economy to destroy a currency absent being on the losing end of a devastating war. But he is flying blind (as every central planner must), and he will be too late (as every politician must be), and he has already warned us that he will ignore the signs that would otherwise be significant.

Eventually, deflation may show up in prices of assets that most benefit from artificial credit expansion...maybe. Beyond this, don't worry. Bernanke is on the job.

Ingo Bischoff, Part Two

2011-03-06T23:29:00.001-08:00

I was asked a series of questions by one of the feed-backers at the Daily Bell, the same Ingo Bischoff interview as referenced in my previous post.

Following are my responses:

@Not Anti-military Per Se

Thank you for your kind comments.

“If Real Bills are like credit who gets the interest?”

Who says credit must come with interest? Credit can be created with or without interest, depending on the desires of the one granting the credit, I imagine.

“Real Bills seem to arrise from production and consumption which seems to be analagous to non fractional credit from savings…”

Fekete is quite clear, to quote him: “I made the central point that the source of commercial credit is not saving but consumption.”

Two people cannot eat the same meal. Something cannot be consumed and used in production at the same time. It is fractional reserves on its face.

“With consumption the Real Bill was in existence only along side the unsold product. This is not credit from nothing.”

From where did the means arise to produce something? Funny money and funny credit can be created from nothing; the worker producing goods financed by Real Bills must eat something while he works for 90 days.

“Inflation transfers wealth, true? Who is the beneficiary of this transfer with Real Bills? Production apparently.”

Yes.

“Real Bills seems to decentralize wealth and power….In any event, Real Bills seem to limit the role of bankers generally and central bankers specifically.”

If arising from a free market, certainly. Ingo continues to indicate a role for the state, and this causes me to hesitate. I do not state anywhere that Real Bills offer no benefit to the current.

“But could Real Bills cause a misallocation of capital?”

Yes, as production is demanding resources that would not have gone into that which it was used absent Real Bills.

“Inflation causes rising price level, true? Real Bills may when the come into existence but then they disappear after ninety days.”

Inflation of the money supply may or may not result in a general increase in prices. Many other factors are also involved, technology improvements for example. That real bills are inflationary only for the time they exist makes them no less inflationary. They no less distort the market and send false signals for this period of time.

“Thru DB interviews it appears that by way of Geo Mason U Econ "Austrians" support fractional banking and even consider it sacrosanct apparently. At the same time these "Austrians" are clear in their denunciation of Real Bills.”

Generalizing the GMU crowd is probably not safe, but my overall read is that there are some there who support FRB only to the extent that it is fully left to the market, not supported by the state. I cannot disagree with this, although some affiliated with the Mises Institute take strong exception. I note that Ludwig von Mises himself seems to indicate acceptance of the possibility of fractional reserve banking within the context of a fully free market in competitive banking and that the market will discipline this to the extent necessary.

”Perhaps most notably Real Bills apparently do not lead to intertest charges as a drag on production or consumption.”

I do not see interest as a drag on production or consumption. All activity must be financed somehow, be it by debt capital or equity capital. Either type of capital will demand a return, which the user of capital owes to the provider of capital. Why isnt it said that equity capital is a drag on production? Does not the provider of equity also demand a return?

One of the issues that doesn’t hold water for me is the difference to the businessman of interest vs. discount. Both reduce from the source of fund (being revenue). Both reduce the bottom line (being profit). In both cases, a third party is taking a cut for carrying paper. All the pretty words in the world do not change these facts. I am quite certain this makes me too stupid for the Real Bills crowd, but to the businessman the distinction is meaningless.

More on Real Bills, with Ingo Bischoff

2011-03-06T06:03:00.000-08:00

The interview with Mr. Bischoff can be found here:

http://www.thedailybell.com/1829/Anthony-Wile-with-Ingo-Bischoff-on-Real-Bills-and-Why-They-Are-Not-Inflationary.html

I posted the comments below at the Daily Bell site as well.

Real Bills are inflation. They expand the money supply beyond the savings available. Setting aside the other (possible) merits of Real Bills, it cannot be ignored that they are inflation. I have demonstrated this before, using the words of both Fekete, and Bischoff, I will do so again.

IB: These surplus goods where exchanged via a "barter system". When the barter system proved too localized and lacking in a fixed standard of value, the "money system" evolved….Gold is "Money", because it is the one commodity with constant or near constant marginal utility.

BM: from these statements, gold represents the value of the “surplus goods.” Therefore, gold represents the “savings” produced and available within an economy.

IB: Gold as a medium of exchange lost its usefulness when the demand for goods outstripped the ability of physical gold to finance the production of goods.

BM: Is the concern the loss of the ability of gold to finance the production of goods? Are we talking about a solution for a lack of credit? There is only a lack of true credit if there is a lack of savings. By definition this is so. Any creation of credit beyond savings illegitimately transfers wealth from one party to another through inflation.

IB: Gold as a medium of exchange to separately finance each step in the production of consumption goods in a modern economy is completely unworkable.

BM: Gold as a medium of exchange ESPECIALLY in a modern economy is completely workable. We don’t need images of tradesmen carting bags of gold to the town market. With modern computers and telecommunications, gold can be used as a medium of exchange instantaneously, countless times per day. The infrastructure is already in place.

IB: The solution was found by using Real Bills as "clearing instruments" to finance the production of consumption items.

BM: Clearing instruments or financing instruments? They are not necessary to clear, and if a financing instrument, they are utilized because, as IB says above “Gold as a medium of exchange lost its usefulness when the demand for goods outstripped the ability of physical gold to finance the production of goods.”

To be clear, IB states clearly that the surplus produced by society is represented in the gold. But when there is not enough gold (surplus, or savings) to finance production, Real Bills are utilized. It is fractional reserve banking. Credit despite lack of savings. This is inflation.

IB: Real Bills function as "clearing instruments." They are not "credit instruments", as is widely asserted.

BM: This is widely asserted only because proponents of Real Bills go back and forth, as IB does often in this interview, for example: “The solution was found by using Real Bills as "clearing instruments" to finance the production of consumption items.” Can IB blame the critics for this misunderstanding?

IB: “Soon, the use of gold as a medium of exchange proved insufficient to finance the production of goods and also facilitate their exchange.”

BM: Once again, are they clearing or are they credit?

IB: Only producers of consumption items which are sold within ninety days are acceptable to a drawer of Real Bills.

BM: Says who? Some law passed by parliament a few hundred years ago? As DB points out in the afterthoughts, IB shows a faith in the state to protect trade that has little basis in history.

IB: Strong supervision by the State over commercial bank operations is essential to prevent rogue bankers from creating havoc.

BM: See my comment immediately above.

IB: Contrary to the widely held perception that the Federal Reserve Act was the result of lobbying and manipulations by the big money center banks, the Federal Reserve Act was really an attempt by the states to rein in the violation of good banking practices by the big money center banks and to preserve the application of the "Real Bills Doctrine" for commercial banking.

BM: What?

IB: The original FRA of 1913 authorized a "redeemable" Federal Reserve Note to be created only against Real Bills and gold within the system. "Anticipation Bills" or U.S. Treasury debt instruments were specifically banned from monetization under the original 1913 FRA.

BM: I have no idea if this was what was in the original legislation. I will grant that it is true. With that, is it not possible that the camel just wanted to get his nose under the tent? The big banks worked out a law that had some teeth, only knowing that, once under the tent, they could manipulate it to their liking?

IB: When in the early 1920s the national economy experienced a recession, the NY FED under Benjamin Strong promptly violated the prohibition against the monetization of U.S. Treasury debt by initiating Federal Open Market Operations (FOMO).

BM: As I said above, perhaps this was the plan all along. Getting the nose under the tent is a useful strategy for actions that must be shrouded in stealth.

IB: With the prohibition of gold ownership, the Real Bills market was destroyed. Businessmen will simply not draw Real Bills that would only be settled with irredeemable currency.

BM: It is done today, every day, in a different form. Revolving credit, which is exactly what Real Bills represented when used.

IB: With the ratification of the 17th Amendment, individual States as governing entities lost their seat at the table of power in the federal government.

BM: No, the states lost their seat at the table in 1865. After proving the point with 600,000 dead, the federal government had little trouble convincing states to tow the line. BTW, wasn’t the 17th amendment ratified at a time when the states controlled the selection of senators?

IB: I assume that by this question is meant, could Real Bills coexist with central banking? The answer is yes. They can, as long as the central bank currency is not protected by a "legal tender" provision.

BM: I am fully supportive of competitive currencies and banking in a free market.

IB: Of course, the ideal is to have a redeemable "National Reserve" currency based on the Real Bills Doctrine similar to the redeemable "Federal Reserve" currency created under the original Federal Reserve Act of 1913.

BM: No, the ideal is to allow competitive banking and currencies, with no one method or system supported by legal tender or other state mandated preferences over any other.

IB: It does not matter whether a "U.S. Dollar" is valued to be 1/20.65, 1/35 or 1/42.22 of an ounce. Any reasonable amount of gold that could be struck into a workable coin would do.

BM: EXACTLY. So when would there never be enough gold? The value of gold relative to the things gold would buy would adjust regularly with the supply / demand characteristics of the various commodities.

IB: Real Bills in and of themselves are non-inflationary. Their volume can expand and contract without causing any inflation whatsoever. It must be remembered that Real Bills are not "credit instruments". They are "clearing instruments" which facilitate that consumption items get to the consumer without first having to pay separately for every step in the production process.

BM: One more example of the reason for the confusion. They are clearing instruments (not needed certainly given today’s technology), but they are not credit instruments (although they came about because there was not enough gold, gold representing the value of the surplus). In and of themselves, Real Bills are inflationary to the money supply.

IB: The criticism I seem to detect is that the free-market quarter views Real Bills as credit instruments and therefore deems them inflationary. Real Bills are not credit instruments and inherently are non-inflationary.

BM: I hate to keep repeating myself, but must because IB keeps repeating himself. See my comment immediately above.

IB: I must correct you. I favor a "land value tax" which is fundamentally different from a "land tax".

BM: In one of our earlier conversations, IB introduced me to this concept. As much as I abhor all taxes, this bears some study. I maintain some interest because I can see it not as a tax paid to a state, but as a system that could likely be supported by a free market.

Bail Out the Banks

2011-03-04T07:39:00.000-08:00

The original article at The Daily Bell can be found here:

http://thedailybell.com/1820/Bail-Out-Europes-Banks.html

The subject interview can be found here:

http://www.spiegel.de/international/world/0,1518,748239,00.html

DB: “There is no head-scratching over HOW banks became undercapitalized. There is only the assumption – a nearly religious one – that banks need to be recapitalized, especially in Europe.”

In the recent Rickard’s interview, he goes through the point of the world being bankrupt. If you could prepare a balance sheet for the economies of the world, there would be no equity, in fact negative equity. I would safely speculate this is a first in modern times, likely a first ever.

DB: “For Eichengreen however, the answer is not to cut spending. The tax stimulus is very ineffective, he says, because it tears another hole in the budget and rich people are not inclined to spend the money that they save with the cuts.”

Banks need to be recapitalized, but of course we can't do it with real savings (which can only be provided in any quantity by the "rich"). One more stupid economist convinced that spending is the path to creating wealth, and savings destroys wealth.

It is simple: true savings results in investment, investment results in productivity improvements, productivity improvements result in improving conditions for man on earth. Remove savings, and man’s condition on earth worsens. We have seen visible signs of man’s worsening condition in the Western world for at least 40 years coincident with the destruction of savings. It is now becoming quite visible in the Middle-East today, and likely soon the tide will turn in China.

DB: “The idea will be to put a basket of currencies in place via the IMF's SDRs that will include the dollar.”

For 100 years the economies of the world have been on the path of wealth destruction. They are at the end of that road. A new currency does not create new capital. It does not improve the state of the balance sheet. The “real stuff” hasn’t increased. The introduction of a new currency only results in the re-allocation of the previously existing real stuff. Real assets don’t increase, liabilities stay the same (in fact, increase, because people are fooled into thinking they have new, real capital).

DB: “We would hope that the chaos that Western powers-that-be are now inflicting on the world will result not in another elite-mandated system but a general breakdown of the abysmal fiat-money system.”

They may last long enough to implement the SDR scheme or some other, although events seem to be moving so quickly that this is not an even-money bet, in my opinion. They may not make it to this point. Whether before or sometime shortly after the introduction of another fiat money scheme, the system will fail. Of this there is no doubt. Smaller communities will be left to pick up the pieces and decide, for example, what to use as money.

Eichengreen (from the Spiegel interview): “But I worry that [bond traders] will begin to distrust the US soon too.”

This is why they will fail. The laws of economics will win out over the desires of man. He worries about the “distrust” of bond traders, giving away the fact that it is all a con game. There is no bond trader that wants to be the last one out the door. Sooner or later, someone will yell “fire”.

Coercion and Choice

2011-03-03T12:05:00.000-08:00

http://thedailybell.com/1817/Is-the-Anglosphere-Driving-Militant-Islam.html

@Bill Ross

Thank you for the thorough post.

When he was alive, my great-grandfather (call him “Pops”) would tell the story of his old neighborhood, where he had a small market. He lived most of his life there, and knew many of the other shopkeepers, as they all grew up together in the neighborhood.

One day the police came to see him. It turns out pops was paying $20 a week to some local guy (call him “Muggsy”) for “protection”. Of course, the “protection” offered was to be protected from further aggression by Muggsy. I think you get the picture.

The officer wanted to know why Pops was paying this to a known ruffian, in fact Pops was funding Muggsy’s illegal acts. Pops explained that he initially tried to protest, but Muggsy would have none of it. One day Muggsy showed Pops a picture of a young girl playing in the schoolyard. That girl is my grandmother. Pops got the point, especially after his fellow shopkeeper went to the hospital for six weeks with multiple broken bones. Everyone knew why he was beaten, no one had to say anything directly.

So Pops explained to the officer that he found no good way out of the situation. In fact, it was when Muggsy told Pops to avoid telling the cops when he showed Pops his daughter’s picture. Besides, Pops was no dummy. He knew that the cops were in on Muggsy’s racket. Pops knew he had nowhere to turn, so it was best to just pay and shut up.

Pops now had a problem. The officer said that Pops was under arrest for aiding a known criminal enterprise. Pops was stunned, yet at the same time resigned to this. Both feelings were caused by the same irreconcilable conflict. He was coerced, and there was no good choice for him to make in this situation. Sure, he sometimes thought about moving to another town, but even if he could scrape together the capital to do it (hard to do when Muggsy was sure to take every excess earnings, thus disallowing savings), he also knew, from stories told by his cousins who lived elsewhere, that pretty much every city he went to offered the exact same condition – every town had a Muggsy. Pops knew nothing good would come from him fighting Muggsy, as he would likely end up leave his family helpless, as the family was in no condition to care for themselves…too young, too old, etc.

End of story.

Now, there isn’t one ounce of truth in the story I just told. Just using it for an example.

Choice (and therefore responsibility for choices made) ends where coercion begins. I do not say this is an absolute, one-zero event, as even in situations of complete coercion, we make judgments about how far we are willing to go, and how much we will protest (either actively or passively). Alternatively, in cases of relatively minor coercion, individuals are not automatically excused from any and all acts thereafter committed. Even major coercion does not relieve one from receiving justice for major crimes. “I was just following orders” may be valid for cleaning the latrine or guarding prisoners of war, but not for the uses that this statement has purportedly been used for in the past.

I consider this in today’s world. There is virtually nowhere to go in this world to avoid supporting one regime or another. Yes, there are relative differences in the regimes, but even these must be weighed by evidence and personal circumstance.

Therefore I find escape by jurisdiction is not a possibility (perhaps to degrees, but you don’t seem to leave room for degrees in your statements). What about escape within a jurisdiction, as you point out you have done to some (or some great) degree? I can imagine this, but not absolutely.

Certainly, one can decide to not provide service to another of his fellows. No income tax. I got that, perhaps with independent wealth (but where did this wealth come from? Was it not taxed at one point in time?). What about no gasoline tax, no property tax, no sales tax, etc? How are these avoided? I can envision a life of complete sustenance and solitude on a farm, never transacting business with anyone else. But how does one have a farm without paying property tax on it? Perhaps lease it from the owner? But then the owner is paying property tax on it, and the tenant is funding this. The circle has no end point. What about going to the market in town? Even doing it by horse and wagon still places you on roads paid for by the public purse. What about going to court for the inevitable fight? This certainly requires a trespass of some sort, whatever fully justifiable reasons one might have. Tax on the cable bill? Internet connection? (Wait, how does one get around that one and participate in this forum? :-))

Certainly, one can choose to provide useful services to another of his fellows and not declare the income or pay the tax. I have read of such people. Cash transactions and barter can be utilized, and are certainly difficult for authorities to track. (Wait, no cash transactions, as that is using fiat currency which inherently represents stolen wealth.) Living in the underground economy is a difficult decision for anyone to make, as the risks seem significant, even more so if one has to think about caring and feeding of a family. And still I find no answer to property taxes, sales taxes, using public roads, etc. or using cash….

So I come back to judgment and degrees. Yes, I can agree that to varying degrees, all residents of a geographical region are in some way responsible for the actions of those who claim governance over that region. Either in this world or the next, there may even be judgment. To be just, this judgment must recognize: the same point where coercion begins is also the same point marking the beginning of the end of choice. And without free choice in action, it is difficult to assign responsibility. It takes…judgment. And this isn't absolute.

The Art of NOT Being Governed: Civilization?

2011-03-02T14:14:00.000-08:00

"If we examine the centripetal narrative of civilization closely, it is striking how much of the actual meaning of "being civilized" boils down to becoming a subject of the padi state."

Reactions by reflex: there is the state, or there is anarchy (in the wrong definition of the word); civilization requires state enforced rules; man living outside of the control of the state is a barbarian, uncivilized.

Yet are these true? Or is the opposite so? Consider: the state is the monopoly of legalized force over a given jurisdiction. How is living under such a system described as "civilized"? Some men have authority to force others to do as ordered, to pay as ordered, to ingest as ordered. With disobedience comes punishment, up to and including death.

Relationships defined by force is called civilization? How is this so? If your neighbor told you to trim your hedge or he will shoot you, would you describe him as civilized? If he said he didn't want to work and that you should pay his rent, or else he has the authority to put you in jail, with what term would you define your relationship? Civilization does not come to mind.

Voluntary relationships or forced relationships: if you observed two societies, one living through voluntary exchange and the other living through force, which would you call civilized? In which would you choose to live, if offered the choice?

There is nothing civilized about using force to get what one wants. There is everything civilized about a society where voluntary relationships define the society. I avoid for now the concern of "living in utopia, it will never work." This isn't my point. The issue is what we consider as civilized, and what we consider as barbaric. Without the state, society would collapse into lawlessness and crime. I argue that, in fact, lawlessness and crime define the very nature of the state.

The Art of NOT Being Governed: Population Control via Slavery

2011-03-02T13:49:00.000-08:00

"...none of these padi states flourished except by slave-raiding on a substantial scale."

So says the author. "...there was no state without concentrated manpower, and there was no concentration of manpower without slavery."

Such observations fly in the face of the standard history, that as the state developed, so did civilization; that people voluntarily migrated to the protection and luxury of the state. this certainly seems not to have been the case.

But is it so surprising? When offered the choice of a life free from legalized coercion, or one where your living and breathing are by permission, which choice would most people make? Even if there was likelihood that the organized state society offered some opportunity for stability, most would choose freedom.

Consider the Great Wall; was it built to keep invaders out, or to keep the subjects in?

In any case, the history of slaving is not obscure, it is well documented because the taking of captives was one of the prime public purposes of statecraft.

It is an interesting and thought provoking subject. Where people had some choice of living under a state or living outside of it, the choice was overwhelmingly to live outside of it; conversely the primary means of populating the state was by force.

Today, the options of living outside of the state are virtually non-existent. But what of this? When there was the option, it was clear that living under the state was slavery. Just because there is no "opt-out" clause today, does this make one's life under the state any less the life of a slave?

My intent is not to equate life in a Western state to slavery in the West of the 17th and 18th century. I only raise the issue: is it any less slavery today than during times past, considering that living under the state requires a captive population, one where force must be employed to keep the people subject?

The "Wealth" of the West

2011-03-01T07:58:00.000-08:00

http://thedailybell.com/1799/Is-the-West-Winning.html

Posted by Bionic Mosquito on 3/1/2011 10:36:51 AM

"Yet the one certainty in this century of Western angst has been that despite repeated war and economic crisis, the West has remained supreme throughout." UK Telegraph/Jeremy Warner

It often strikes me that, even after at least 100 years or more of abuse, the West remains visibly "wealthy." I have concluded that this is solely due to the enormity of wealth created over several hundreds of years. Wealth not just in terms of financial assets, but culture, art, philosophy, etc.

Consider the inhabitants of the USA. Many live on this storehouse of wealth, not realizing they are consuming it daily and producing none to replace it. What storehouse? The work of Locke, Paine, Jefferson, and countless others ' the philosophy of individual freedom and liberty, all men created equal, etc. many still believe they have it, despite never having read any of it directly or in any way understanding it.

How is it being consumed? Every act of Congress, Executive Order, Patriot Act, financial bailout, public education, etc. Each one chips away at the previously stored wealth of the philosophy of freedom and liberty ' call it classical liberalism.

Yet, many still believe they live free. It speaks to a) the amount of wealth that was once stored in this idea, and b) how very long it can last even if not replenished.

What of the monasteries and universities of Western Europe. Consider the centuries of training, education, development of philosophy, etc., behind each one of these hundreds of entities. No, not all of it pointed to liberalism, but much contributed toward liberating events culminating in the 17th and 18th century.

I have mentioned before: Jacques Barzun (From Dawn to Decadence) and Martin van Creveld (The Rise and Decline of the State) cover this (in different ways) much better than I can. They both conclude the notion of state is at an end, and smaller more localized structures will replace it.

Richard Maybury: More Thoughts on The Ugly

2011-02-25T11:39:00.000-08:00

I have been giving continuing thought on this idea of investing in defense stocks and Maybury's advocacy of same. I would quote something from Rothbard, as it captures well an aspect of my objection:

"This [the availability and use of modern weapons of war as opposed to guns or bows and arrows] is why the old cliché no longer holds that it is not the arms but the will to use them that is significant in judging matters of war and peace. For it is precisely the characteristic of modern weapons that they cannot be used selectively, cannot be used in a libertarian manner.”

The defense contractors of which Maybury speaks do not make handguns. They certainly do not craft feathers for bows. They manufacture weapons whose destructive power cannot be pinpointed accurately to the proper and intended target. We have become inured to the term “collateral damage.” Collateral damage: the killing of innocents and non-combatants.

The weapons Maybury advocates that others invest in, the use of which he tries so sheepishly to defend in the previously linked comments, kill far more innocents than they kill of the guilty. These are not weapons the use of which are morally neutral – just depending on the intent and goodness of the person pulling the trigger, if you will. These weapons, as a regular and expected outcome of their use, as an inherent feature based on the designed capability, kill innocent people.

It is immoral to voluntarily choose to profit from the trafficking in such goods.

The Myth of National Defense: The History

2011-02-24T20:00:00.000-08:00

The first chapter of the book is entitled: The Problem of Security: Historicity of the State and "European Realism", by Bassani and Lottieri.

"[The State] forbids private murder, but itself organizes murder on a colossal scale. It punishes private theft, but itself lays unscrupulous hands on anything it wants, whether the property of citizen or alien."

Albert J. Nock, 1928

The authors contend that one of the greatest mistakes of many libertarians is to follow a simplistic scheme of power, that is to call "State" every form of political aggregation and to believe in the perennial nature of this human artifact. In other words, if the state is nothing more than political power, and if this entity has been with us forever, then isn't libertarianism just another form of utopia?

Perhaps this should be further considered. A central axiom of libertarianism is the idea that the same morality applies to every person - as I like to put it, the same action cannot be legal or illegal, right or wrong, moral or immoral depending on the employer of the actor. For the libertarian, the fundamental concern isn't politics as politics, but the idea of a monopoly of violence, or a monopoly on "legitimate" use of force.

This is the one characteristic that has truly set the "state" above its predecessors - the ruling class is legitimized to act by any means necessary, while the people at large are bound by a set of laws created by the rulers (in addition to being bound by common morality). These ideas have been developed by several writes in the 16th century, the most famous being Machiavelli, but also to include Botero, who was the first to argue that men may legitimately act in ways that would be considered crimes if done for the safety of the state.

To repeat, the state was not always so. To quote Pierson: "For most of its history, humanity got by (whether more happily or not) without a State....Once we have recognized that there were societies before the State, we may also want to consider he possibility that there could be societies after the State."

Certainly, the medieval period is one such period where a political and juridical order existed in Europe prior to the rise of the modern State. (I have commented elsewhere about the region labeled Zomia, in Southeast Asia as another such stateless zone.) The word feudalism is often used to identify this time in history. It is a word full of emotion. Unfortunately it is a word covering the ignorance about a time before the modern state came into being. I will admit I have much to learn about this period in history.

The self-governing regions of northern Italy and central Europe certainly qualify, in the authors’ view, as a different way of providing peace and security. In such places and during this time, merchants and citizens formed their own statutes regarding passage, immigration, and exchange. This seems rather appropriate - who would care more about the people coming to trade and / or live amongst them than the already established residents of the region?

For several centuries, customs, traditions, and traditional Roman laws worked together to assure a juridical order. Law was a way to resolve conflicts, and was usually a private matter, resolved within well defined rules. Feuds broke out often, but were relatively minor affairs, with the families involved asked to quickly restore the public peace. Basically, community norms "handled" the situation.

With the advent of the concept of “State”, this history had to be purged and the creation of a history to include the concept of state began almost immediately, for example especially in the second half of sixteenth century France. The historians went to work.

I have touched on this idea before: why is there a history of the state, and little or no history of "no state"? To ask the question should answer it. The state, the provider of education, the writer of history, surely would not want to expose the subjects to the idea that there was life before the state. Likely within a few generations the transformation was complete.

Hereafter, the State and sovereignty went hand in hand. Sovereign authority became the absolute power of the State. Not temporary, not delegated, not answerable. The sovereign need not be gifted, only that he has the absolute power to decide.

There is no liberal neutralization of this concept of monopoly authority. A constitution will not hold it in check. In the situation where law is controlled by a monopolist institution, force dictates law. This is tyranny. What authority would grant otherwise? In whose hands could such power be trusted? Would the desired good-natured citizen even want such power? Certainly, those who desire such power are always the last ones who should have access to such power.

That the State provides useful functions does not imply that only the state can provide these functions, say Rothbard. He adds that the libertarian insists on applying the same moral law to everyone, no one is above this law. When the behavior is otherwise, it cannot be distinguished from a professional criminal class.

History provides alternatives. Other systems of organizing society are available. The free market is identified as one of the best tools to unite humanity and connect individuals. The free market requires that relationships are built, and that these relationships are built based on trust. Such a cohesive cannot be achieved in a system where the view is to plunder or be plundered, or as Rothbard put it "...a meaningless plunder of all by all..."

Society under the State is not civilized. To the extent there is a State is directly correlated to the incivility of society. There is nothing civilized about a monopoly of the use of force. There is nothing civilized about actions allowed to some while disallowed to others. Yet, these are the features of the State. That many call this “civilization” says much about the degree to which humanity has been purged from our being.

The Myth of National Defense: Introduction

2011-02-24T19:36:00.000-08:00

Yes, another book. This is a compilation of essays on the theory and history of security production, edited by H.H. Hoppe.

One of the more difficult questions to address for the advocate of anarchy is that of national security or national defense. This book appears to be right on topic. My thought is to give some commentary and expand n some of the ideas presented in this work.

In the introduction, Hoppe identifies two of the most widely accepted propositions among political economists and political philosophers:

1) Every monopoly is bad from the viewpoint of consumers, monopoly here meaning exclusive privilege granted to a single producer of a good or service.

2) The production of security must be undertaken by and is the primary function of government.

The two propositions are obviously incompatible. In this, the orthodox view is to take exception to the first proposition. This book will attempt to address that it is the second proposition that should be challenged.

Empirical evidence supports the unorthodox. The 20th century should be proof enough of the horrors unleashed when security is provided by the monopoly state. Certainly, many states are, in fact, aggressors and not defenders.

The orthodox then claim that these disasters are due to the types of governments involved - the absence of democratic government being the culprit. This, however, fails to answer many counter-examples: the American war between the states, for example.

Mises suggests that, in order for a government to fulfill its primary function as a provider of security it must satisfy two conditions: it must be democratically organized, and it must permit unlimited secession in principle.

Where government is a compulsory territorial monopolist of protection and jurisdiction equipped with the power to tax without unanimous consent, any notion of limiting its power and safeguarding life, liberty, and property must be deemed illusory.

Experience certainly bears this out.

Free Banking, Part One

2011-02-24T15:06:00.000-08:00

From Human Action, Chapter 17, Section 12

"But now, we assume further, one bank alone embarks upon an additional issue of fiduciary media while the other banks do not follow suit. The clients of the expanding bank - whether its old clients or new ones acquired on account of the expansion - receive additional credits, they expand their business activities, they appear on the market with an additional demand for goods and services, they bid up prices….In order to settle the payments due to non-clients, the clients must first exchange the money-substitutes issued by their own - viz., the expanding bank-against money. The expanding bank must redeem its banknotes and pay out its deposits….The instant approaches in which the bank will - after the exhaustion of its money reserve - no longer be in a position to redeem the money substitutes still current. In order to avoid insolvency it must as soon as possible return to a policy of strengthening its money reserve. It must abandon its expansionist methods."

Mises makes a powerful statement here. Leave banks free to compete. Accept that one or more banks might issue excess credit. Understand that, as market participants recognize this they will demand instant redemption. This will force the issuing bank to either reduce the excess or quickly go out of business before doing much damage.

Mises does not make any statement advocating the outlaw of fractional reserve banking, at least not in this section. He is quite clear that it is the market that will best regulate expanding banks, and that clients of the expanding bank and especially clients of its more conservative competitors will be vigilant regarding the bank's risky practices.

This is just as one would expect an advocate of free markets to consider the situation. Mises does not condemn fractional reserve banking to the point of utilizing government force to control it. Elsewhere in this section he describes how government intervention inherently results in complacency on the part of market participants, what today we refer to as moral hazard.

"But even if the 100 per cent reserve plan were to be adopted on the basis of the unadulterated gold standard, it would not entirely remove the drawbacks inherent in every kind of government interference with banking. What is needed to prevent any further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling every individual and firm to fulfill all obligations in full compliance with the terms of the contract."

Here, Mises is quite clear that even a 100% reserve standard, if backed by the government, does not remove the risks of government interference in banking. Treat banks as you treat every other business, under general laws, and the market will regulate the banking industry in a much more effective manner than would the government.

"But, some people may ask, what about a cartel of the commercial banks? Could not the banks collude for the sake of a boundless expansion of their issuance of fiduciary media? The objection is preposterous. As long as the public is not, by government interference, deprived of the right of withdrawing its deposits, no bank can risk its own good will by collusion with banks whose good will is not so high as its own."

Mises is clear that a banks good name is everything - there is no such thing as a cushion of reserves that will protect the bank once its good name is questioned. In this light, he rightly states that a bank wouldn't voluntary join hands with banks other than those of unquestioned integrity. It takes years to develop goodwill, and minutes to destroy it. Without a good reputation, a bank in a free-market environment would not last long in the market - a significant barrier to purposely risky behavior.

Ludwig von Mises and Free Banking

2011-02-24T14:51:00.000-08:00

I have read almost none of von Mises directly, yet there is no single economist that has captured my thinking more than he has. I believe this is so because Austrian economics fits very naturally into my views of how man interacts with man. Nothing captures this better than the idea of Human Action. Humans act. These two words capture so much wisdom in so many ways...I could write many pages about this, perhaps another time.

Mises discusses the idea of Free Banking in Human Action, chapter 17, section 12. I can say this is the first section of any of his work that I have read directly. Make of that what you will.

My intention is to write a series of articles on subjects and themes from this section, in four main groupings:

1) Competitive, Free-Market Banking - Mises holds that competitive free banking (no government intervention or support) is the only way to regulate banking. He allows for the possibility of artificial credit expansion, and is quite certain that the market will quickly force a correction whenever this practice is implemented by one or more banks.

2) Being "Fooled" Into Taking and Holding Dubious Banknotes - Mises describes the reasons he does not believe this will be of concern.

3) Credit Expansion / Real Bills - Mises describes the inflationary nature of Bills of Exchange

4) Gresham's Law - Mises rightly describes Gresham's Law, with good money driving out bad if all money trades freely.

Mises covers much ground in one small section. I will attempt to capture the key points and properly expand on these.

The Art of NOT Being Governed: State-Accessible Product

2011-02-24T11:24:00.000-08:00

"A premodern ruler in mainland Southeast Asia would have been less interested in what today would be called gross domestic product (GDP) of his kingdom than what we might call its "state-accessible product" (SAP!)....Given a choice between patterns of subsistence that are relatively unfavorable to the cultivator but which yield a greater return in manpower or grain to the state and those patterns that benefit the cultivator but deprive the state, the ruler will choose the former every time. The ruler, then, maximizes the state-accessible product, if necessary, at the expense of the overall wealth of the realm and his subjects."

In Southeast Asia, the preferred method of creating a legible field of appropriation was often rice. It was uniform product with a uniform growing season. Easy to count, easy to value, easy to tax. Make the people dependant on it for diet, by eliminating many other choices, and the result is that to sustain life one must work in a manner fully exposed to the state. The sedentary grain growing made it easy to develop the tax role, as the population was fixed to a location.

“Though shifting-cultivation agriculture might provide a higher return to the cultivator’s labor, this was a form of wealth that was inaccessible to the state.”

There were many crops besides rice that were grown in the region. Many continued to be grown in the hills after the development of the state in the valleys. However, these were not uniform, could not be easily valued, were not tied to a uniform growing season, and therefore very difficult to appropriate by the state (or other predators for that matter). Often they were root crops, growing and maturing underground and out of sight. Such patterns allowed for easy movement by the cultivator; no fixed address, if you will.

Things have not changed much, over the centuries and over the miles. A subtle form might be in the form of the currency. Society is coerced into a very singular uniform product, that being the currency of the state. Taxes are required to be paid in it, therefore everyone must earn or otherwise acquire it. The valuation is easy.

There are, of course, other forms. People often complain about the struggles of a small business. All of the regulations, ordinances, requirements, etc. these may be possible for a large company to absorb, but not so easy for the small businessman. What is the result? More people move to large business for their employ. These are much easier to regulate – a few large players as opposed to an infinite number of small players. The penalties of not complying with requirements such as a W-2 form or a 1099 are great. Withholding and submitting payroll taxes? It is impossible to imagine a large corporation taking such a risk purposefully.

However, small business? They are already on a shoestring. Not that I suggest they are less ethical, but it is easier to miss a requirement, more of a struggle for cash flow, more possibilities for cash transactions that later get missed in the accounting in a small firm.

Bigger and uniform is better. Easier to count, easier to control, and easier to measure. Most important of all, easier to appropriate. Times haven't changed much.

The Myth of Retirement Savings

2011-02-23T06:17:00.000-08:00

http://www.thedailybell.com/1780/Where-are-the-Baby-Boomer-Nest-Eggs.html

“The myth underlying these attacks (including Simpson's misogynist bovine metaphor) is that most old people don't need their entitlements — that they are affluent pickpockets fleecing younger Americans. – LA Times”

Actually, the myth underlying the attacks is that the money is there, waiting to be paid to retires. By “money”, I don’t mean the check that is in the mail, or a social security trust fund. Instead, meaning that true purchasing power of goods equivalent to the amount (falsely believed to be) saved. The myth is that the goods will exist at the time I need them when I retire.

That “money” was spent the moment it was taken from the paycheck. The money that will be returned will look the same, function the same, but won’t be the same.

It is the same for the stock market and housing – two other retirement myths, cousins of the social security myth. There is only value in these upon retirement if there is productive capacity willing to trade some of that capacity for your retirement. The same is true for cash savings and gold – both worthless unless there is enough productive capacity willing to work in exchange for your leisure.

In the end, there must be enough productive willing to support the non-productive. When the system is voluntary, the system maintains some balance: both through the true worth of savings (true savings are the root of investment which is the root of productivity, thus allowing savers to retire based on their contribution to enhanced productivity…hence modifying and increasing the previously possible non-productive to productive ratio), and through extended families, as DB rightly points out. When the system is coerced, too many are falsely led into an impossible belief: others (the government, the stock market, financial planners, etc.) will be better stewards of your future (and care for you more) than you and your extended family.

DB: “Central banks and modern stock markets are the two halves of an efficient, middle-class money-extraction mechanism.”

Certainly true, as to stock markets for an additional reason: volume. A small cut off of the top of every trade. It doesn’t matter what the market does as long as people keep the faith and trade. Like the single-zero or double-zero on the roulette wheel (depending on where you play), this small cut ensures the house always wins.

Jay Taylor at The Daily Bell

2011-02-20T08:29:00.000-08:00

http://www.thedailybell.com/1773/Anthony-Wile-with-Jay-Taylor-on-Inflation-Vs-Deflation-the-Possibility-of-a-Gold-Standard-and-Why-the-West-Is-Failing.html

Altogether, a very good interview and I thank DB for bringing Mr. Taylor to my attention. Also, I thank DB for the after-thoughts. This idea of measuring money is terribly complex, and that is reason enough to admit that “money” cannot be controlled or centrally planned. Kind of like having some central committee trying to figure out the “right” amount of oxygen. How silly would THAT be? (Oh wait, they were actually trying to DO that, too.)

Anyway, some thoughts on the interview:

JT: Basically what you have is a statist propaganda machine through the schools and universities, which are state owned and controlled.

Some argue (and I tend to agree) that this is THE root of all the problems, even more so than the FED, for example.

JT: I think the reserve system lasts for the moment, or as long as the United States military can finance itself.

This is the relationship that matters. The dollar reserve system lasts as long as US military hegemony lasts which lasts as long as the dollar reserve system is in place.

JT: There are embedded cultural expectations for freedom that have given rise to the Tea Party and to people like Congressman Ron Paul.

This is why it seems to me if there is any hope anywhere for some “re-birth” of freedom, it will be in the US. There is a culture that (naively) believes they are free today. One day (when all the promises are broken) the scales will be removed from the eyes, and then (hopefully) the people will demand what they believed they had all along.

JT: [regarding inflation] …when will people finally decide and have enough confidence to stop sitting on their savings or start spending it in the United States?

It isn’t a question of people sitting on their savings. It is solely a question of the excess reserves held by the banks.

JT: But longer term, there is no question the dollar will disappear.

If he believes this, he should stop talking about deflation. By definition, with deflation, the dollar isn’t disappearing. It is getting stronger.

JT: The answer [to the depression] eventually came in the form of World War II.

No, it came with the end of WWII. WWII only masked the unemployment, by “employing” millions in military servitude, along with price controls to hide the destruction in the economy.

JT: So, whether you are on the inflation side or whether you lean on the deflation side, as I do, the one answer is go to money that does not lose its value: gold.

If you believe deflation (a stronger purchasing power of the dollar) why would you buy gold? Hold the dollar: the relative gains of the dollar to everything else will come to you tax free, with no risk of confiscation or any other type of loss or theft.

JT: You need to have small denominations for small purchases. You are going to need this to go to the store to buy bread when the financial system breaks down, and I think it will.

If the system collapses to this extent, the worst thing for your safety will be to walk around town as one of the few with a commodity (gold or silver) available to trade. Plus, if supplies are so dear, shopkeepers won’t easily give up good consumable goods for items that cannot provide food, shelter, or safety. Anyway, the thugs would already have stolen all the goods from the store anyway.

The Art of NOT Being Governed: Zones of Refuge

2011-02-19T12:41:00.000-08:00

" There is strong evidence that Zomia is not simply a region of resistance to valley states, but a region of refuge as well....Far from being "left behind" by the progress of civilization in the valleys, they have, over long periods of time, chosen to place themselves out of the reach of the state."

This touches on the idea that the standard narrative of progress is one where barbarians are slowly and systemically brought into civilization via the natural growth of the state. As if it is unfortunate that some have not yet been brought under the protective umbrella (control) of the state.

Instead, it seems that many purposely and by intent chose to remain outside of or to otherwise avoid the state. "...the history of hill peoples is best understood as a history not of archaic remnants but of "runaways" from state-making processes in the lowlands."

As mentioned previously, this is not only true for Zomia, but in many other regions and for many other people around the world. "The Cossacks...were, at the outset, nothing more and nothing less than runaway serfs from all over European Russia." " The history of the Roma and Sinti (Gypsies) in late-seventeenth-century Europe provides a further striking example."

Instead of being the outcasts, in fact these groups and others chose to "cast-out", if you will, the state. These people are not the unfortunate remnants of others who chose to voluntarily move into the state-controlled lowlands and "civilization". They are the ones who purposely chose to stay out, or who had otherwise escaped from the lowland states.

Richard Maybury: The Ugly

2011-02-19T06:17:00.000-08:00

5) His suggestion for defense stocks is indefensible. That he decries the connection of patriotism being hooked to war, yet makes this investment recommendation, is disconcerting. Others have made this point quite well.

He advocates investing in defense stocks. Given the use of the weapons produced by these companies – for offense, not defense – this is a most immoral position. He explains his views further here:

http://www.earlywarningreport.com/weaponstocks.html

Quotes to follow are from the above-linked article:

"Some of you have objected to me recommending stocks in these "merchants of death." You say that, given the US government's aggressive behavior abroad, investing in weapons companies is unethical... The weapons industry sells its products all over the world. In my home I have weapons, and these are used only for self-defense and target shooting. The police and sheriff in your home town have self-defense weapons, and I am sure most readers of this newsletter do, too."

We are not talking about handguns and rifles. The issue is much bigger, and of course Maybury knows this. The day F-16s, cruise missiles, M-1 tanks, and nuclear powered submarines and aircraft carriers are available for purchase by the common man I might have a different opinion.

"Innocent people deserve the best protection they can get."

Maybury seems to agree with me...but I am guessing not.

"The ethics, or lack of them, are not in the weapons, they are in the minds of the people who pull the triggers. Weapons are neutral."

If this was so, everyone would be allowed to purchase these weapons. These weapons are used by people whose minds we know. The minds are aggressive and offensive. They are not defensive. The minds are expansionist, as opposed to non-interventionist. These weapons are bought and paid for with stolen money solely for the purpose of intruding in places around the world, outside of any reasonable definition of "national defense."

We require criminal background checks for the purpose of buying a simple handgun. Yet, Maybury advocates the morality of placing a nuclear aircraft carrier group - a weapon system more capable than the military capability of all but a small handful nations - into the hands of those whose background we know all too well. This isn't a neighborhood watch group, or a shopkeeper in a small market.

"I wish there were totally uncorrupt investments, but I do not know of any."

In many ways, I can agree with this statement. However, is it not possible to consider this on a scale? Is the wanton death and destruction of countless innocent lives on the same level as selling beer and wine to a willing buyer, even when the buyer might be an alcoholic? There is no larger crime than ending innocent life. This fact cannot be overcome with the idea that none are pure, so everything is fair game.

"I am often asked, is it ethical to invest in General Dynamics or other companies that make war goods?

" No. But it is one of the less unethical investments we can make. The whole financial system is grossly corrupt.

"One of the most evil things I can do is put my money in a bank, mutual fund, pension or insurance. All such organizations buy US Treasury bonds. This means they loan my money to the government. The government pays them interest, which they pass along to me.

"The $6.4 trillion of US Treasury bonds have become international interest-bearing money. Nearly every organization of any type in America, and many abroad, keep their cash in these bonds.

"So, by putting my money into a bank or almost any other financial institution, I am loaning it to the government, giving politicians the means to do whatever it is they do. With no limitations."

Yes. And of ALL the things politicians do with this money, the most immoral and corrupt is associated with the death and destruction of innocent lives via the weapons system they procure. I do not agree with government spending at any level, but I would gladly trade the immorality of wars as currently practiced for welfare or other transfer payments. Both are theft, only one results in murder.

And again, we know the background check. We know the track record and intent. It isn't the Swiss Army we are discussing here. Maybury cannot be this naive.

Richard Maybury: The Bad

2011-02-19T06:00:00.000-08:00

Now, for the bad:

6) He specifically points to America being a special place between 1945 and 2001. Others would refer to this as the height of Dreamtime. I certainly do.

This comment of his is somewhat unnerving. I will start of by suggesting that if there ever was a time that America was a special place, it was during the time that the Articles of Confederation were in effect. Except if you were black (and I do not say this lightly).

How could the time 1945 to 2001 be viewed as special? It was during this time that America led the way for one-world government schemes: The UN, IMF, and World Bank were all conceived under America's stewardship. America fought almost continuously in wars near and far. Korea, Vietnam, the Middle East, Yugoslavia, Iraq, and Afghanistan are only a few of the big ones.

Income tax was fully introduced 30 years before this special time, as was the Federal Reserve. States were taught a vicious lesson in disagreeing with the central government 80 years before this special time, thereby eliminating the single best check and balance on the central state.

Income tax withholding was recently introduced. The gold standard was voided in 1971, ushering in US and global inflation in a massive scale rarely if ever before possible. Deficits skyrocketed once this last discipline was removed from the system.

Any remaining sense of balance brought on by the family and community was greatly harmed, if not destroyed, during this time. Divorce, abortion, births to unwed mothers all previously looked at as undesirable, now became accepted and even normal behavior.

How this period can be called special is beyond me. It might have been special in a secluded, surreal, "Father Knows Best" kind of way, but otherwise I am at a loss as to how this is so in the real world.

Richard Maybury: The Good

2011-02-18T22:41:00.000-08:00

First, for the good. I will use as an outline my initial comments on this interview:

1) As mentioned before, ethics is the key. As Maybury suggests "Thou shalt not steal." Private property must be inviolate from government taking just as much as from private.

Once it is deemed appropriate that private property can be taken against the rightful owner's will, where can the line be drawn. By what moral or logical argument can one say "this far, but no more"? I can only conclude that private property must remain so, else there is no such thing.

At what of the stealing? This starts at the top...and the bottom. The theft begins when people use government to take from others. That there is a middleman sanitizes nothing. When such actions are considered normal, no Constitution, no legal system can protect the individual. This immoral action must be recognized as such, and brought to an end.

2) I appreciate his comments about the previous role of competing currencies in Europe. Also, I agree that we will see a break-up in Europe and elsewhere into much smaller political and social units. We will not get one-world government. The turmoil we are now enduring will ensure this.

Competing currencies, especially within a given jurisdiction, may be the easiest way to get through this mess of the world economy. It is the one hope for a relatively smooth transition away from the dollar in the US and worldwide, and away from the Euro in Europe.

As to the breakup into smaller units, this has been happening already and will continue to be so. The Soviet Union broke up into a dozen or more smaller parts. Yugoslavia broke up into a half-dozen or so. Czechoslovakia broke up into two.

As to one-world government, it seems that there is nothing to replace the global warming / carbon credit tax scheme that was to help usher this along. The economic system collapsed in 2008, and the global warming scam that was supposed to replace it collapsed shortly thereafter. In any case, even this would not have succeeded, or not for long.

3) He also suggests eventually we will insist on and utilize a commodity backed currency. This is certainly so, it must happen if civilization is to survive.

The game of worldwide fiat has gone in far longer than many imagined possible - since 1971. For economy to thrive, money must be trusted as a store of wealth and currency must retain some anchor of value. This has been avoided with terrible consequence, as seen by the tremendous imbalances built-up throughout the world. Savings is the key to investment. Investment is the key to productivity. Productivity is the key to life as we have come to know it. Absent a sound money, none of this is possible. Civilization cannot survive, and the destruction will be widespread and not necessarily limited to the common folks.

4) His point on real estate seems to be it is better than the dollar. This may be true, and certainly will be to the extent we are headed to a crack-up boom.

I have struggled with this myself. It is easy to make an argument that real estate has room to fall further. But what if the dollar falls faster? The best suggestion I have heard is that if one finds a property that cash flows well, buy it and don't wait. No one is perfect, or even much above-average when it comes to timing, at least not on a consistent basis.

Ellen Brown invests in Gold and Silver

2011-02-12T21:43:00.000-08:00

This was rather a surprise for me. See Ms. Brown's comment at:

http://thedailybell.com/1737/Anthony-Wile-with-Richard-Maybury-on-the-Collapse-of-the-Anglo-Empire-and-What-It-Means-for-You.html

Her comment is time stamped: Posted by Ellen Brown on 2/7/2011 1:16:12 PM

This is rather surprising: an advocate of funny money recognizes the value of gold and silver over and above the value of funny money. On the surface, one can say that her investments should not reflect on her economic views (and vice versa), but this is a silly assertion.

Richard Maybury: The Good, the Bad, and the Ugly

2011-02-12T21:40:00.000-08:00

I have contemplated writing this series since last week, when I read the interview of Mr. Maybury by Anthony Wile of The Daily Bell. I have decided to jump in with both feet.

The original interview can be found here:

http://thedailybell.com/1737/Anthony-Wile-with-Richard-Maybury-on-the-Collapse-of-the-Anglo-Empire-and-What-It-Means-for-You.html

My comments as posted in the thread follow:

Posted by Bionic Mosquito on 2/6/2011 1:18:44 AM

This is truly a wonderful interview. I am certain to have further thoughts after reading it again later.

"I don't see any long-term solution for America or any of the rest of the world until they start accepting the fact that government has to be ethical, just like individuals."

This captures it in a nutshell. There is no point to look to the Constitution, the Tea Party, or any other possibility until this idea is embraced. Many hold theft in their hearts, and find it acceptable to utilize theft through government agents as a means to an end...or cannot see the immorality of government agents acting in manners that would not be accepted by mere civilians.

I made the following comment a week or two ago here, it seems equally appropriate now (slightly modified):

Absent:

1) Inviolate property rights,

2) Recognition that coercion is not a proper means to order society, and

3) No one, regardless of employer (e.g. government employee), is subject to laws different than the rest,

The Constitution is of little comfort as a document, although certainly better than others of which I am aware (especially when taken with The Declaration of Independence).

After further reviewing the interview in detail, I posted a second comment:

Posted by Bionic Mosquito on 2/6/2011 11:37:47 AM

I offer further thoughts, and thank many DB feedbackers for bringing some of these to the forefront:

1) As mentioned before, ethics is the key. As Maybury suggests "Thou shalt not steal." Private property must be inviolate from government taking just as much as from private.

2) I appreciate his comments about the previous role of competing currencies in Europe. Also, I agree that we will see a break-up in Europe and elsewhere into much smaller political and social units. We will not get one-world government. The turmoil we are now enduring will ensure this.

3) He also suggests eventually we will insist on and utilize a commodity backed currency. This is certainly so, it must happen if civilization is to survive.

4) His point on real estate seems to be it is better than the dollar. This may be true, and certainly will be to the extent we are headed to a crack-up boom.

5) His suggestion for defense stocks is indefensible. That he decries the connection of patriotism being hooked to war, yet makes this investment recommendation, is disconcerting. Others have made this point quite well.

6) He specifically points to America being a special place between 1945 and 2001. Others would refer to this as the height of Dreamtime. I certainly do.

Now, why do I describe this interview as “The Good, the Bad, and the Ugly”?

The Good: Overall, Mr. Maybury speaks quite well for the role of ethics if a just society is to be preserved. Also he is quite clear about his views of fiat money.

The Bad: He views that America was a really special place in the period obetween1945 to 9/11. This view seems far-fetched, as it more appropriately seemed to be the time of maximum dreamtime.

The Ugly: He advocates investing in defense stocks. Given the use of the weapons produced by these companies – for offense, not defense – this is a most immoral position. He explains his views further here:

http://www.earlywarningreport.com/weaponstocks.html

I will, over the next week or so, write three further columns on this, one each for good, bad, and ugly.

2011-02-07T08:00:00.000-08:00

As if by request, Robert Murphy has added some clarity as relates an earlier topic discussed here:

http://bionicmosquito.blogspot.com/2011/02/intrinsic-value.html

Murphy's column can be found here:

http://mises.org/daily/4907/Subjective-Value-and-Market-Prices

The Art of NOT Being Governed: Creating Subjects

2011-02-05T14:29:00.000-08:00

“Avoiding the state was, until the past few centuries, a real option. A thousand years ago most people lived outside state structures, under loose-knot empires or in situations of fragmented society.”

What changed? Why did more fall under the heel of the state? What tools were used to make this happen?

Again, referring to earlier comments about lack of roads, trains, etc., the hills were difficult for the state to access efficiently. These tools were incorporated, but not essential in areas where transportation was relatively easy – flatlands, river access, even over oceans for a sea-faring people.

The fundamental tool to which the author points is sedentary agriculture: grain farming. In the region of the world he is studying, this means rice. He views this as the foundation of the state’s power.

What are the characteristics the author identifies that makes this so? Some examples:

1) The location is fixed, making it easy for the state to find both the people and the assets.
2) The crop is uniform, making it easy for the state to assign value.
3) Absent disease or other famine causing events, grain farming is expansionary – the excess is turned into ever larger families and thus populations under control.

This as opposed to what is otherwise a more hunter-gatherer lifestyle:

1) The location varies. Follow the buffalo, if you will.
2) The crop often grows underground, out of the eyesight of the state. It can be left underground – depending on the crop – for months or years, stored neatly out of sight.
3) The crop is diverse. Various forms of regional fruits, nuts, and vegetables are grown. This adds difficulty to assigning value, or assessing tax.
4) Population grows more naturally and consistently with the surrounding environment. Fewer people to “control.”

What does this mean today? In the modern West, only a very small fraction of the population farm for a living. However, the control mechanisms are the same.

The population is quite fixed. We have homes or apartments with physical locations. These locations are registered with a local agent of the state. We are assigned various forms of personally identifying codes: Social Security numbers, driver’s license numbers, and passports. Our financial transactions can be tracked in complete detail.

Our crop is uniform: a standardized accounting unit (locally approved legal tender), easy to count and measure. We are greatly discouraged by penalty of tax or prison from using non-sanctioned tender.

I see something here in the relationship of government and big business as well. Laws, regulations, agreements, etc., are passed by the state. Inherently, whatever these are they favor large business over small or family run business. It takes resources to comply with edicts. It takes resources to influence the form of those edicts. In both cases, large business has an advantage over small business.

At the same time, it is the large business that is easier to track. Payroll records, tax withholding, transactions in forms other than cash, monitoring of activities by regulators, and other activities: these are all much easier the fewer and larger the number of employers. There is more certainty that the large entity will comply.

Without making any social commentary about Wal-Mart, consider this from the view of the state: is it more likely that Wal-Mart will comply with all declarations of the state than will every one of the millions of small shopkeepers that Wal-Mart replaced? I believe it is safe to say that amongst the many small shopkeepers prior to Wal-Mart, there were countless unreported cash transactions, less than full compliance with labor laws, no hope of benefits and training that are possible under Wal-Mart, etc.

The point is anchor the people to the land. Make the people and their assets easily identifiable. Make the accounting uniform. All of these allow for counting and tracking, statistics for the planners. With this, control is possible. The times have changed. The exact tools are different. However, the philosophy behind the mechanisms is quite the same.

Franco-German Hustle?

2011-02-05T09:24:00.000-08:00

http://www.thedailybell.com/1738/Anthony-Wile-EU-Franco-German-Hustle-Spells-More-Trouble.html

These events are quite interesting to watch...and live through?

Czechoslovakia could not keep two (or more) tribes together. Yugoslavia could not keep a half dozen (or more) together. The Soviet Union could not keep a dozen (or more) together.

I believe it was very much in the interest of the PE that these artificial conglomerations stayed intact, if for no other reason than the continued ability to keep the people on both sides of the wall in a state of fear. Yet, these states crumbled.

Little Belgium cannot keep two tribes together, yet we are to believe that all of Europe will hold together...one big happy family?

Scholars much brighter than I am have concluded that the time of the nation-state as we know it is at an end, and society will form in smaller, more naturally-formed groups. The history of the last 50 years seems to prove this general direction. The laws of economics make the breakup of the current system certain, and no "law" or new "currency" can change this fact. The journey, obviously, might be a bit turbulent.

Fractional Reserve Lending, etc.

2011-02-05T07:48:00.000-08:00

In reply to a comment at:

http://www.thedailybell.com/1735/Central-Banks-Now-Creating-Hyperinflation.html

@Ingo Bischoff

I find several aspects of your post confusing.

“You must understand that the Federal Reserve cannot just willy-nilly create "Federal Reserve Notes" out of thin air…The New York Federal Reserve started to violate these provisions in Section 14 of the FRA by monetizing Treasury debt in the 1920s.”

I am not an expert in the Federal Reserve Act. I will take your word on what it allows. However, given that individuals at the New York Fed “violated” these provisions without personal or institutional consequence, I would say they certainly CAN create FRNs willy-nilly out of thin air.

“(The claim that fractional reserve lending creates additional currency is bogus. A little bit of math applied to the claim blows it out of the water.)”

I am quite aware you have in mind precise definitions of currency and money, so perhaps my confusion here is definitional. On 60 Minutes, when Ben Bernanke was asked about the Fed printing money (which I believe in your definition, really refers to currency), he honestly replied no. The Treasury prints the money. However, he was being quite precise as well.

Of course, the technically honest reply wasn’t the honest reply. Ben knew this.

So, in this same light, I can understand the fractional reserve lending does not create additional currency units: neither the banks nor the Fed have a printing press.

However, fractional reserve lending does produce additional units of digits that can compete for and purchase materials, goods, labor, and assets. These digits are currency units in my definition. Perhaps not in yours. Thus my confusion.

I can understand your statement in the “Ben Bernanke” literal sense. However, I do not understand it in the real world sense. I also understand why you believe it, as you defend Real Bills from the same charge. Real Bills also enable fractional reserve lending in exactly the same manner, and for Real Bills you also appear to claim it does not create additional currency (or in my terms, digital or paper purchasing units), as you are quite insistent Real Bills are not inflationary. As you know, I disagree in the case of Real Bills, just as I disagree with you as regards fractional reserve lending. The root of your belief is the same in both, and it is helpful to me (and perhaps others) that you have stated the equivalency of the two so clearly.

“After 2008, FRNs were created with two different kinds of quality, those which represented taxpayer productivity and those which represented private debt. The problem is that you cannot distinguish between them.”

The distinction is unimportant. That digits are created out of thin air is the key. The Fed buys securities with digits it created just as easily as the digits I am creating in typing these words. The difference is, my digits don’t trade in the market for billions (or trillions) of “dollars”. That the securities come with different risk profiles is important around the edges, but the crux of the crime is in the creation of digits from nothing.

“The FED is now running out of defaulted mortgages and defaulted credit card debt to monetize. The only solution left is to print "money" out of "thin air" with which to pay the interest and debt payments due.”

The Fed need not run out of things to purchase. There is no limit on what they can buy. Can they not buy municipal bonds? There is no shortage of these in want of buyers. To say nothing of a couple trillion dollars of treasuries annually. Why not corporate bonds?

All of the Feds purchases, of any security of any quality are made by printing “money” out of “thin air”. No one at the Fed is producing product by which they can earn real money in the marketplace. It is ALL funny money. What is purchased is less important that the fact that digits from nothing are created to purchase the assets.

Destroy the Dollar?

2011-02-04T15:58:00.000-08:00

I sometimes wonder about the men behind the mask. What of Bernanke? Does he really want to go down in history as the only head of a central bank of an industrialized country (if memory serves me) to fall into hyper-inflation absent the devastation of war or similar catastrophe. Would he want his name remembered this way? What about the board of governors, or the dozens of high level working stiffs?

Ben may be a true believer in central banking, but I doubt he is stupid. At minimum, he certainly knows enough to know he is playing with fire. How can he not? Even the "acceptable" (by mainstream) monetarists would agree that the risks in this current policy are great.

Is he willing to destroy his name forever in exchange for this seat of power? Has he agreed to take the risk because of promised wealth at the end of the rainbow? Or at the risk of personal harm if he doesn't go along? Does he really want to usher in a global currency, which would diminish his (or the institution's power) completely?

Did he really daydream as a child: "I will one day oversee the destruction of the US Dollar, once the most successful currency instrument in modern history"?

He looks too nervous for one who purposely wants to destroy. I don't think he has a psychological desire to be remembered in this way ... No answers, just wondering.

The Art of NOT Being Governed: Uncivilized?

2011-02-04T15:18:00.000-08:00

It seems to be the standard commentary that people of the hills, of lands not yet subsumed to the state, are uncivilized. The state brings order. The state brings civilization. The natural progression is for people, once ungoverned, to move into a condition of being governed by the state.

The author views this differently:

"I argue that hill peoples are best understood as runaways, fugitive, maroon communities who have, over the course of two millennia, been fleeing the oppression of state making projects in the valleys – slavery, conscription, taxes, corveé labor, epidemics, and warfare. Most of the areas in which they reside may be aptly called shatter zones or zones of refuge.”

The relationship of civilization and state are rather interesting. Let’s consider two alternative environments:

1) Most, if not all relationships are voluntary. Family lives and works together, with multiple generations caring for and helping each other. Neighbors work with neighbors to build a better community. Protection is provided in a mutually agreed manner amongst people within a common geographic region. No one is afforded power of coercion over others in a significant (and certainly not unlimited) manner. Any form of “laws” (likely in the form of custom) is applicable to all, with adjudication carried out either amongst the involved parties or by a mutually respected third party. Property is private, and this expectation is absolute, or virtually so.

2) One or a small handful of the members of the community are granted special privilege. This privilege allows the few to lord over the rest. For example, to collect tribute for various means: protection, subsidy for retirement, etc. Laws that are applicable to the common man are not applicable to the lords – those with privilege are granted immunity from judgment in such cases. Judgment on the common man is passed by the same group that establishes the laws, with little or no regard for the desires or benefits of the victim. Property either belongs to the privileged directly, or can be claimed by the privileged whenever desired.

Which society could be described as civilized? Which society describes the relationship of the state to the subjugated? Is the answer to these two questions the same, or is it different?

The extent of “state”, I would suggest, is a reflection of the lack of civilization in society. It is civilized to live voluntarily with our neighbors. It is uncivilized to tax (steal from) our neighbors for our own benefit. In polite society, this would be called theft or slavery. It is no less so when carried out by a man with a badge.

Zomia was a region where statelessness was real. It was possible for those who did not want to live under control of the state to escape to a land where voluntary relationships were the norm. While certainly there was trade between those in Zomia and those under state rule – in fact some would travel from one to the other depending on personal circumstance – when looked at in the light as portrayed above in my two examples, is it a wonder that many would choose option one? Is it at least cause for pause that we are taught to believe option two is the civilized society?

We are not taught to understand that statelessness was a choice for many who purposely chose to avoid the grasp of the state. We are taught that the advance of civilization and the advance of the state were one and the same event. In fact, the state was often and largely populated by slaves – victims of capture from war, for example.

We are taught that the barbarians were…barbarians, that the gypsies were…gypsies. In fact, for these groups and others, this was most certainly a conscious desire – after all, the closest state certainly would not have turned away people willing to become subjects. The only reason residents of Zomia were not incorporated into the false “civilization” of the state was because they chose not to be.

Intrinsic Value?

2011-02-03T08:39:00.000-08:00

http://www.thedailybell.com/1733/Economic-Dreamtime-Unravels.html

Posted by Bionic Mosquito on 2/3/2011 10:37:58 AM

"Fiat money sinks towards its intrinsic value which is zero..."

I am not sure it is appropriate to refer to any asset as having as intrinsic value. Value is subjective. There is no proper or intrinsic value for anything, only a value at which a good will trade. This value will always be subjective, based on the views held by those participating in the market. This value can change regularly, and certainly does. This is true for fiat money, just as it is for gold.

If items had a true intrinsic value, trade would inherently be a win-lose proposition, only occurring because the loser was too dumb to know better. However, in (honest) trade, both parties are winners: a win-win. I value the candy bar; the store keeper values my dollar. We both feel better off after the trade.

Same for gold. The seller of gold for currency certainly finds more value in the currency than the buyer of gold does. Value is subjective, not intrinsic.

Posted by Bionic Mosquito on 2/3/2011 1:50:14 PM

@Maritzanita

"Good luck doing anything with your "!!???intrinsically valuable???!!" pieces of paper!!!!!"

Your ignorance comes shining through in your ranting. I just got done saying nothing has intrinsic value, and you offer me good luck with my ""!!???intrinsically valuable???!!" pieces of paper!!!!!"

You ignore my point. Value is subjective. There is no such thing as intrinsic value.

That you or I might favor gold or Lady Gaga memorabilia has nothing to do with it. The fact that some people WOULD choose Lady Gaga over gold to travel through time with only proves the point. Different people value the same thing differently. Different people might prefer one item over another. The same person might value the same thing differently over time.

But you try an experiment. Go out in the desert for two years. You will see no other human being, and have no chance for rescue. You can take either a water truck or a London good bar of gold.

Which do you choose? Do you do so intrinsically or subjectively?

Wonders of Pricing

2011-02-03T08:36:00.000-08:00

http://www.thefreemanonline.org/headline/cornfield-socialism/comment-page-1/#comment-39497

Profit and loss is the most effective feedback mechanism ever designed for those concerned with efficient use of resources. A pricing system free of government distortion is the most effective communication system devised by man, and is necessary for an effective feedback loop of profit and loss. This pricing system is language neutral, understood by all around the world.

State intervention distorts these systems. The state purposely acts to hinder communication that ensures the efficient use of resources. It distorts the systems that allow man to interact freely with fellow men everywhere around the world.

This interference divides man from man, whereas prices freely arrived at, and the subsequent profit and loss system, are designed to unite man.

Dividing man from man helps to generate the conflict that the state then uses as a tool to further aggrandize itself.

Gresham's Law

2011-02-01T17:50:00.000-08:00

My comments to an article at The Daily Bell evolved into a discussion about Gresham's Law. See the original editorial here:

http://tinyurl.com/4zehpz8

Posted by Bionic Mosquito on 2/1/2011 11:19:06 AM

"Before going any further I would like to establish my credentials."

Please, just let your statements and arguments establish your credentials. The world is full of people bragging about their credentials.

"The only thing that needs to be done is to declare the legal tender protection of irredeemable dollar unconstitutional."

Yes, this will suffice. It will never happen, but it will suffice. Don't look to the Constitution as salvation.

"It was clear that the Treasury staff was sabotaging the wishes of President Bush."

This is politically naive. Is it fathomable that Bush, the most insider of insider Presidents, really desired for gold to back the dollar again? Why would anyone believe this? Impossible.

@David Robertson,

You are misinterpreting Gresham's Law, as most do. I quote from Wikipedia: Gresham's law is commonly stated: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."

Posted by Bionic Mosquito on 2/1/2011 2:18:48 PM

@David Robertson

It is impossible to read the article you cite and not come to the conclusion I point out in my first post. I do not understand how you are interpreting it.

Selgin is quite clear: where legal tender does not force a preference of one coin over the other, good coins are preferred. Where legal tender requires fixed exchange rates or other favored treatment, the bad coin wins. You have offered evidence to further demonstrate my point. I thank you.

I will suggest in a fully free market, both good and bad coins could circulate, each at a value the market deems appropriate. There will always be a market clearing price for every freely traded asset.

Your "simple observation" is not applicable in this world of legal tender laws. Selgin's paper fully supports the proper interpretation of Gresham's law, as I stated above.

Posted by Bionic Mosquito on 2/1/2011 5:39:31 PM

@David Robertson

"We simply disagree on the results of the application and that is good."

No, we disagree on the definition and interpretation of Gresham's law.

"You and the Daily Bell staff may use your gold and silver coins and keep your FRNs and I will use my FRNs and keep my gold and silver coins."

This comment further demonstrates that you do not understand Gresham's law, or my point.

"We both agree I assume that we view FRNs as inferior. This is the bad money that Gresham avers would drive out the good (gold and silver)."

Try a thought experiment. Pretend you are the seller of goods and not the buyer (yes, it takes two to make a trade). Why would you, the seller of wheat or steel, accept FRNs or other "paper" in exchange for good assets? A market is not just whatever the buyer dictates. The seller must also agree.

Now, in small steps, let's move ahead. Back to you being a buyer. Go find a seller of wheat who will trade it for paper, when there is a market trading wheat for gold. What if there isn't such a seller? You may "want" to pay with paper, but no seller of wheat is willing to accept it. Good money thus drives out bad.

Posted by Bionic Mosquito on 2/1/2011 5:59:10 PM

@David Robertson

I will add: good money may not fully drive out bad money.

Imagine 100% gold backed money, 100% silver backed money, 20% gold backed money, and money backed by the full faith and credit of a taxing authority.

Each will find its level as derived by the market, and would always regularly adjust to each other as market participants dictate. Each type of "money" will find a relative value to each other. The market will determine the worth of each "money" in the market, and each "money" will find a value to settle where it will function for trade.

Every commodity and currency market is a good example of this today. Even the market in gold demonstrates that there are those willing to sell gold at a given price in FRNs. Else, how could you buy gold for FRNs?

That you demonstrate a preference has nothing to do with the correct interpretation of Gresham's law.

A Thought About the US Constitution

2011-01-24T17:59:00.000-08:00

Absent:

1) inviolate property rights,

2) recognition that coercion is not a proper means to order society, and

3) no one, regardless of employer, is subject to laws different than the rest (setting aside who makes and enforces the laws),

the Constitution is of little comfort as a document, although certainly better than others of which I am aware (especially when taken with The Declaration of Independence).

That these were not clearly delineated is a flaw. There may be hints of this in the document, but like any written document, subject to interpretation. Even the Fifth Amendment makes clear that private property can be taken.

Of course, there is that little problem of being party to an agreement that one was never party to....

Anarchy, by Roderick Long

2011-01-21T15:37:00.000-08:00

I only recently came across this gentleman. To my detriment. He speaks and writes quite eloquently regarding anarchy as a means of organizaing society.

Two podcasts from LRC:

http://www.lewrockwell.com/lewrockwell-show/2008/11/14/68-are-you-an-anarchist/

http://www.lewrockwell.com/lewrockwell-show/2011/01/19/183-we-do-not-need-a-state/

His blog:

http://aaeblog.com/

The text of a speech given at The Mises Institute:

http://www.lewrockwell.com/long/long11.html

More on Real Bills, with Ingo Bischoff

2011-01-20T14:47:00.001-08:00

I will encourage all to visit the comments by Ingo Bischoff at the subject article, beginning at: Posted by Ingo Bischoff on 1/19/2011 1:56:59 AM.

The article can be found at: http://tinyurl.com/4b79xyw

Following is my reply to Mr. Bischoff's post at: Ingo Bischoff on 1/19/2011 10:31:07 PM. I encourage that his post is read in its entirety.

@Ingo Bischoff

I thank you again for your diligent and detailed comments in this dialogue. You offer a wonderful example of the positive aspects of such forums.

1-3: I believe I haven't been clear in my use of the term “saved consumption good.” I am not speaking of milled flour being “saved” to deliver to the baker. I am speaking of (in this example) bread, not milled flour. There can be no production of milled flour without there first being a savings of previously produced bread. The miller must eat while he is milling. The baker must eat while he is baking. Neither is living on the bread that is yet to be produced. The previous “savings” of milled flour is not edible to the producer of bread while the producer of bread is producing bread. The producer of milled flour cannot produce milled flour without the savings of previously produced and saved bread.

There must be savings in the form of goods immediately ready for consumption for there to be further production of consumption goods. To have time to produce, one must have access to bread in the meantime.

4: “In the absence of Real Bills, all steps in the production of a consumption item would have to be financed by savings.”

But all steps in the production of ANY good requires savings, and must be “financed” by savings. The miller must have access to previously saved bread to sustain his life in order to attend to the task of milling. The baker must have access to previously saved bread for the same reason. Real Bills cannot provide the bread for sustenance during the production of bread if the bread doesn’t exist as savings.

5: Please see my comments to 1-4 above. I do not hold this position due to my growing up under Fed central banking, Keynes, or Friedman. I hold these positions because I know if I am to spend time milling, I must in the meantime rely on previously saved bread to live. It is a question of needing to eat while I work on something I cannot immediately eat. It is not due to any supposed mis-guided economic ideology.

6: By your own statements, I can conclude this is inflation. You state that “In the absence of Real Bills, all steps in the production of a consumption item would have to be financed by savings.” The problem is ALL steps MUST be financed by savings. Real Bills cannot change this fact. Your statement indicates that Real Bills offers credit (not in the legal sense, but in an economic sense: meaning accepting deferment of an immediately consumable good in trade for my output) absent savings. This is inflation. It is the same as the actions practiced by central banks. They also offer credit absent savings.

Posted by Bionic Mosquito on 1/21/2011 11:32:51 AM

@Ingo Bischoff

Thank you for the understandable example. I will only add that every participant in the chain (the owner of the granary, the miller, the baker) must also have savings (or access to savings) in order for production of bread to occur. There must be savings (in the form of consumption goods previously produced but not consumed) in order to provide credit (commercial or otherwise) to fund the production that serves consumption. Absent savings, the credit is inflation.

I return to Dr. Fekete's statement: "I made the central point that the source of commercial credit is not saving but consumption." I have attempted to gain clarification on this many times before (I apologize, as I don't recall if I had this discussion with you in addition to others).

The terms used by Dr. Fekete must have meanings different than I understand and different than what I can glean from your example. Or his theory is different than your theory, or I can not grasp the nuance, or ???

In any case, I feel as if we are now talking in circles. I am satisfied that I understand your explanation. However, if Dr. Fekete again emphasizes this statement in an editorial at DB, I will again raise my question.

Posted by Bionic Mosquito on 1/21/2011 12:43:00 PM

@Ingo Bischoff

Respectfully, Dr. Fekete did not say: I made the central point that the INCENTIVE TO PROVIDE commercial credit is not saving but consumption.

Such a statement would fit in with your explanation. And it would be somewhat understandable.

I will quote him again: “I made the central point that the source of commercial credit is not saving but consumption."

He made "THE CENTRAL POINT" that the "SOURCE" of commercial credit is not saving but consumption. This is a combination of Ellen Brown and central banking. I will not repeat again all of the reasons I conclude this. It is so.

The more I hear statements trying to explain away this seeming impossibility of his “central point”, the more I conclude it is a wrong statement. With his “central point” he is, in fact, advocating inflation as the source of wealth creation.

Posted by Bionic Mosquito on 1/21/2011 3:05:46 PM

@Ingo Bischoff

The key word is "source". Dr. Fekete must be using this in a manner I do not understand, and a manner different than its conventional meaning. In the manner I understand the term, and in its conventional meaning, I conclude real bills, via monetary inflation, facilitate production. His own statement (and statements you have made) only confirm this for me.

There is a difference in my statement and Dr. Fekete's. Source does not mean "incentive to provide." I do not know how to explain it differently.

Ellen Brown defines the source of credit as a claim on future production (to the extent she even has an answer, as her comments to Schiff demonstrated her confusion more than anything else). This is, of course, wrong. This is the similarity in a nutshell.

In any case, we have gone in circles, and I have taken up too much of your time. My point is not to convince you, as I am sure that will not happen in any case. My point is to try to gain clarity myself as to real bills and inflation, and secondly to put the conversation in a public forum such that others can draw their own conclusion. In this, I think enough has been done on this thread and on this aspect of real bills.

I thank you again.

More deflation? Antal Fekete at the Daily Bell

2011-01-19T06:32:00.000-08:00

http://www.thedailybell.com/1692/Antal-Fekete-There-Is-No-Business-Like-Bond-Business.html

"But as my theory suggests…the presence of risk-free speculation renders the increase in the money supply counter-productive. It causes prices to fall rather than rise."

Dr. Fekete spent the entire article talking about bond prices rising, he concludes by saying prices are falling. Which prices? Bond prices? If he is referring to other prices, where is this so? The Fed, the banks, and the Treasury have been playing this game for decades, certainly since the death of Bretton Woods. Are commodity prices on average lower today than they were in 2000? 1990? 1980? 1970?

The depression is a poor example: start with no FDIC insurance as a big culprit for price deflation. In any case, a few years out of a hundred doesn’t tell the tale. The relevant period for comparison should be post-1971, when redeemability died. The Fed, the Treasury, and the banks have been playing the bond game the doctor describes since then, and prices have gone up over five-fold.

If the doctor is correct, cash is the asset everyone should hold. Cash and only cash. This would make investing life much easier, and also generates no taxable income. My purchasing power will improve without generating taxable income. Why do anything but hold cash?

This scam of bonds has gone on for decades. There has been no price deflation. No wonder the doctor is a lone voice in the wilderness.

Price Deflation, by Dr. Fekete

2011-01-18T18:34:00.000-08:00

The subject editorial can be found at:

http://www.thedailybell.com/1688/Antal-Fekete-Stupid-Wager-or-Clever-Prestidigitation.html

I was going to go through a point by point commentary of this editorial. I cannot. As is usual with Dr. Fekete's writing, it is not very comprehensible to me. Make of that statement what you will: I have a feeling that there will be two camps with opposite and strong opinions of this as it relates to my competence.

It appears that the good doctor is saying that the actions of the Fed and other central bankers in the world will result in the purchasing power of the dollar and other fiat currencies to increase. If so, this would be a first in history to my knowledge. No wonder he is a self-proclaimed lone voice on this subject.

Of course, as with all discussions of inflation and deflation, one item missing here is a proper definition – or at least a definition that the doctor would like us to use. Is he speaking of prices as measured by the CPI? Is he speaking of asset prices? Is he speaking of the money supply? Left unsaid, an Austrian would assume the topic refers to the money supply. I have no idea what the good doctor is referring to, but he seems to be discussing consumer prices as he refers to targets the Fed is aiming for. In the common lingo, this is consumer prices.

To varying degrees, the Fed (with and through the banking system) has been creating money since 1913, accelerating since 1971 and supercharged since 2008. Yet, other than perhaps one year in the 1950s, there has been price inflation continuously. I wonder: is there some reason we should expect something different now? Why hasn’t this great deflation that is so certain in our future happened at any time since the end of the war? The same practice has been going on for decades, without deflation. But somehow it is different this time. Let’s get this one out of the way now: don’t go back to the depression; the money supply shrank because of the lack of FDIC insurance. That isn’t a problem today.

Now, it is quite possible we will see a deflation in asset prices, especially assets propped up by leverage in the banking system as currently configured. But a lower CPI? Highly unlikely.

The Fed wants people to watch the CPI. As long as it is benign, it is all systems go for money printing. As has been true with all money printing (or coin shaving, or whatever you want to call it), the money will eventually fail. I do not see how this can result in that same failed money gaining purchasing power.

More on Real Bills at The Daily Bell

2011-01-18T13:02:00.000-08:00

The original article can be found at:

http://tinyurl.com/4b79xyw

@Ingo Bischoff

I thank you again for taking time to further expand on this.

"So we go on and defend our view points in the meantime."

Yes, but more. I think the discussion allows for the proof of that being discussed, it allows for the testing of ideas. It helps in better dissemination of the ideas. The internet, and certainly forums like that DB offers are good avenues to prove by fire the ideas we each hold.

"Without the use of Real Bills to fund production of consumption goods, the savings pool in gold would have to be fifty times larger than with the use of this "social circulating capital".

This statement gets to the heart of my criticism regarding real bills and inflation.

1) Paper (in the form of Real Bills) doesn’t fund the production of consumption goods. Saved consumption goods (previously produced goods, not yet consumed) provide the ability to fund the production of other consumption goods.

2) If there is savings in the form of consumption goods such that it is available to fund the production of further consumption goods, then these will be funded to completion. Real Bills may facilitate the necessary division of labor, but this mechanism isn’t the only one available.

3) If there is not such savings in the form of previously produced consumption goods, the projects cannot be funded to completion. Eventually, the market will realize that the resources are not available to complete the open projects. (The “bust” of the “boom and bust” twins.)

4) In the case the savings exist, there does not need to be 50 times more gold. Prices would be one-fiftieth of what they would have been absent real bills. (No, I am not advocating validity of quantity theory of money, I am speaking directionally.)

5) To claim that some form of “paper” is what is necessary to fund production strikes me as the same theory of central banking today. They are “priming the pump”, trying to “engage the animal spirits”, or whatever. It is a different form of claiming the same thing: using paper to hide the fact that there are not enough resources saved.

6) Hence, inflation. With all of the distortions that such a system brings into the economy. Including the bust that comes when the market concludes that the resources do not exist to complete the open projects.

7) Perhaps the 90 day window limits this damage, but the damage is in any case real. And as assets utilized in the production of consumption goods can alternatively be used for other goods, the damage of inflation will not stay limited or constrained. Distortions will reverberate throughout the market.

Thank you again for the dialogue. While others might have had a vision regarding real bills, it still eludes me as to my objections. Perhaps due to my shortcoming, or perhaps due to the theory. I am satisfied in the fact that the dialogue gets a fair airing, as DB so graciously allows.